Category Archives: Buffet News

Refiners Find New Investors in Buffett and Icahn

11 August 2012 –

Gasoline refiners, shunned by investors because of falling demand and rising regulation, now count Warren Buffett’s Berkshire Hathaway Inc. and billionaire Carl Icahn among shareholders as lower oil prices promise wider returns for fuel makers.

Buffett’s Bet

Buffett, Berkshire’s chairman and chief executive officer, said last month in an interview on Bloomberg Television that one of his deputies had invested in Phillips 66, which became the largest independent refiner in the U.S. after the Houston-based company was spun off from ConocoPhillips.

Icahn didn’t respond to a request for comment. Buffett didn’t respond to a request for comment sent to his assistant, Carrie Sova.

New drilling and production techniques used to crack shale rock brought a flood of new gas, deflating prices to a 10-year intraday low of $1.902 per million British thermal unit in April. The same methods now are being used to harvest oil, spurring three straight years of surging output in the U.S., the first time that’s happened since 1985, according to data compiled by Bloomberg.

The renaissance has caused U.S. crude prices to fall below other varieties of oil traded globally, giving refiners with operations near new U.S. oil production the advantage of paying less for each barrel they purchase. Refiners with access to growing supplies from North Dakota’s Bakken shale formation and other northwest oilfields, were the first to benefit.

Warren Buffett Remains Optimistic On Housing And How To Benefit From It

10 August 2012-

Warren Buffett’s Berkshire Hathaway (BRK.A) saw its recent profits fall 9% on losses from its derivatives portfolio. However, these derivative losses are unrealized (i.e. he has not sold the position) and are long term positions in equity indexes in US, Europe and Japan with a maturity date of 2018 and later. Buffett, outspoken on the problem with financial derivatives, has stated he will not likely be increasing additional derivative positions due to changes in financial accounting for derivatives.

While Buffett may not be purchasing more derivatives, these positions do represent a traditional view of this value-orientated investor; Buffett expects US, Europe, and Japan indices to see growth in the upcoming years. A simple strategy to mimic these expectations would be to purchase index ETFs, which is nothing new, or we can take a look into two sectors below that Buffett expects to benefit greatly from an increase in economic growth.

Housing: Last month, Buffett expressed increasing optimism toward the US Housing market in general. Granted, there are still weaknesses, but it’s clear that Buffett expects this sector to rebound in the next couple of years (remember, this value-orientated investor rarely likes to make 3 month speculations). Real-estate indices including the S&P/Case-Shiller 20-City have shown consecutive month to month growth after a prolonged trough. Berkshire Hathaway’s positions also include that of Clayton Homes, which builds, sells, finances and insures manufactured homes. Continued housing growth would help drive overall economic growth in the United States.

Buffett was recently quoted saying Europe’s financial issues are having a negative impact on United States and that weak residential housing is holding back growth. However, Buffett’s recent bid to purchase large amounts of distressed housing loans from ResCap’s bankruptcy offering show another story. Should he win the bidding, this would offer Buffett a large portfolio of loans (approximately 4 billion) that could see considerable upside if the housing market recovers. It appears that Buffett does think housing will recover and feels now that is a great time for purchase cheap assets.

Positions that would benefit from an increase in housing include Caterpillar (CAT) and Wells Fargo (WFC). Wells Fargo is the largest US Home Lender and Buffett’s 2nd largest position.

Transportation/Railroads: Another sector that would benefit heavily from US Economic growth is transportation. Buffett made headlines for his 2009 bet to buy-out BNSF (Burlington Northern Sante Fe Corp). This bet, the largest bet that Buffett has made, is making a prediction that when (and not if) economic growth comes roaring back, it will take the railroad and freight movement with it. Because the United States produces so many economic goods that must be transported, railroads can be more efficient than trucking in moving large quantities of goods across long distances. Buffett’s 2011 purchase of Lubrizol (engine and machinery lubricant) for $9 billion showed that Buffett expected engine and machines usage to increase (often a proxy for economic growth). Lubrizol also provides goods to emerging markets which are likely to see increased demand.

The transportation industry has recently seen a change in commodities it services. The recent use of cheaper natural gas has resulted in lower coal demand. Coal, which is largely transported by railroads, have thus impacted revenues of BNSF and its competitor Union Pacific Corp (UNP).

However, while usage of coal has dropped for these transportation stocks, the amount of business from shale, crude oil, and petroleum related shipments has increased dramatically. Demand for coal still remains as a crucial transportation driver, but increased demand for shale-related products is expected to see double-digit growth in the upcoming years. Whether the increase in demand for shale will off-set the diminished demand for coal remains to be seen, the transportation industry will likely see strong growth if US economic growth picks up.

Positions that would benefit stronger economic growth and increased demand for shale include mid-west Union Pacific Corp who are trying to capitalize on shale demand. Other railroad companies may warrant a look, but be aware that not all railroad companies have access to nearby cheap coal to transport. The continued drop in demand for coal would impact railroad companies that transport expensive coal first. Buffett’s 2009 buyout of BNSF deserves much praise; BNSF’s access to cheap and clean coal from the Powder River Basin and proximity to numerous shale fields is looking to be another profitable Buffett investment.

A Look At Yearly Returns Of Berkshire Top Holdings

10 Aug – 2012-

Performance Review Of Berkshire Hathaway Top Holdings.

1. Coca-Cola (KO)

  • Holding Value: $15.95 billion
  • Shares: 200,000,000
  • Stake: 8.4%

The stock returned 26% over the past 1-year period. Operating and profit margins are 23% and 18%, respectively. There was no fizz in last quarter’s numbers — revenue growth was 2.7%, while earnings were flat. P/E (forward) is 18.3. It has a solid 26% return-on-equity (ROE), a 0.53 beta (stock price is only 53% as volatile as the overall market), and a dividend yield of 2.6%.

2. Wells Fargo (WFC)

  • Holding Value: $13.39 billion
  • Shares: 394,334,928
  • Stake: 7.44%
  • Increased holdings by 10.63 million shares (+3%) since the previous reporting period.

Wells Fargo provides banking service primarily in the US.

The stock returned 50% over the past 1-year period. Operating and profit margins are 38% and 22%, respectively. Last quarter’s revenue increased 5%, while earnings grew 17% — a nice widening of margins. P/E (forward) is 9.2. It has a beta of 1.3 (stock price is 30% more volatile than market) and a dividend yield of 2.6%

3. IBM (IBM)

  • Holding Value: $12.87 billion
  • Shares: 64,395,700
  • Stake: 5.36%
  • Increased holdings by 489,769 shares (+1%) since the previous reporting period.

Big Blue provides information technology (IT) products and services worldwide.

The stock returned 22% over the past 1-year period. Operating and profit margins are 21% and 15%, respectively. Last quarter’s revenue decreased 3%, while earnings grew 6% — so margins widened, a positive. P/E (forward) is 12. It has a fat 74% ROE (though debt load increases a company’s ROE, so IBM’s fairly sizable debt load makes this number better than it would otherwise be), a beta of 0.67 and a dividend yield of 1.7%.

This stock looks potentially appealing, despite its recent flat revenue growth. It has some solid financial stats and promising future prospects (in artificial intelligence involving its “HAL” robot and data analytics). Apparently Buffett thinks so, too — he only began buying this stock in 2011.

4. American Express (AXP)

  • Holding Value: $8.74 billion
  • Shares: 151,610,700
  • Stake: 13.02%

American Express provides banking and credit card products, as well as travel-related services worldwide.

The stock returned 36% over the past 1-year period. Operating and profit margins are 24% and 17%, respectively. Last quarter’s revenue grew 3%, while earnings were flat. P/E (forward) is 12.3. It has a beta of 1.8 and a dividend yield of 1.4%.

5. Procter & Gamble (PG)

  • Holding Value: $4.85 billion
  • Shares: 73,254,136
  • Stake: 2.71%
  • Decreased holdings by 3.5 million shares (-5%) since the previous reporting period.

P&G is a global consumer products company.

The stock returned 15% over the past 1-year period. Operating and profit margins are 18% and 13%, respectively. Last quarter’s revenue decreased 3% while earnings grew 45% — so margins widened, a positive. P/E (forward) is 16. It has a beta of 0.44 and a dividend yield of 3.4%.

6. Kraft Foods (KFT)

  • Holding Value: $3.19 billion
  • Shares: 78,017,165
  • Stake: 4.33%
  • Decreased holdings by 9.02 million shares (-10%) since the previous reporting period.

Kraft Foods manufactures and sells packaged food products worldwide.

The stock returned a tasty 25% over the past 1-year period. Operating and profit margins are 14% and 7%, respectively. Last quarter’s revenue decreased 4%, while earnings grew 5%. P/E (forward) is 15. It has a beta of 0.53 and a dividend yield of 2.8%.

7. Wal-Mart (WMT)

  • Holding Value: $3.46 billion
  • Shares: 46,708,142
  • Stake: 1.14%
  • Increased holdings by 7.67 million shares (+20)) since the previous reporting period.

Wal-Mart operates discount stores under the Wal-Mart name and warehouse club stores under the Sam’s Clubs name. It’s been making further headway into the financial services arena in recent years.

The stock returned 55% over the past 1-year period. Operating and profit margins are 6% and 3.5%, respectively. Last quarter’s revenue grew 8.5%, while earnings grew 10%. P/E (forward) is 14. It has a beta of 0.41 and a dividend yield of 2.2%.

8. US Bancorp (USB)

  • Holding Value: $2.28 billion
  • Shares: 69,039
  • Stake: 3.61%

U.S. Bancorp provides banking and financial services in the US.

The stock returned 57% over the past 1-year period. Operating and profit margins are 43% and 30%, respectively. Last quarter’s revenue grew 9%, while earnings grew 18% — so margins widened, a positive. P/E (forward) is 11. It has a beta of 1.0 and a dividend yield of 2.4%.

9. Johnson & Johnson (JNJ)

  • Holding Value: $1.98 billion
  • Shares: 29,018,127
  • Stake: 1.06%

Johnson & Johnson is a global health care products company.

The stock returned 16% over the past 1-year period. Operating and profit margins are 25% and 13%, respectively. Last quarter’s revenue decreased 1%, while earnings dropped 50% — so margins narrowed, a negative. P/E (forward) is 12.5. It has a beta of 0.55 and a dividend yield of 0.6%.

A red-flag on this one is the good number of quality control issues over the recent couple years.

10. ConocoPhillips (COP)

  • Holding Value: $1.64 billion
  • Shares: 29,100,937
  • Stake: 2.25%

ConocoPhillips is involved in the exploration, production and transportation of crude oil, natural gas, natural gas liquids, liquefied natural gas and bitumen throughout the world.

The stock returned 25% over the past 1-year period. Operating and profit margins are 9% and 5%, respectively. Last quarter’s revenue decreased 17%, while earnings dropped 33%. P/E (forward) is 10. It has a beta of 1.1 and a dividend yield of 4.7%.

I’d stay away from this one. It has a 5-year PEG of -5, meaning analysts expect negative earnings growth over the next five years.

And here’s a bonus…

11. DirectTV (DTV)

  • Holding Value: $1.14 billion
  • Shares: 22.999,600
  • Stake: 3.51%
  • Increased holdings by 2.65 million shares (+13%) since the previous reporting period

DirectTV provides digital TV primarily via satellite in the US and Latin America.

The stock returned 18% over the past 1-year period. Operating and profit margins are 17% and 9%, respectively. Last quarter’s revenue growth was 10%, while earnings grew 1% — so margins narrowed, a negative. P/E (forward) is 9.5. It has a beta of 0.96.

Decoding Buffetts Ejection From Consumer good Stocks

8 August 2012-

In 2009 Buffett had predicted that the economy was at its rock bottom and the only thing left was the market to go up. And its also true that since then the Dow has jumped 36 %. Recently, Buffett has complained of disappointing performance at some of the more consumer-oriented holdings of his Berkshire Hathaway (BRK-A) (BRK-B) investment vehicle — stocks such as Johnson & Johnson (JNJ), Procter & Gamble (PG), and Kraft (KFT). Now, in a regulatory filing dated Aug. 3, Berkshire is reporting about a 21% reduction in the amount of consumer products stocks it holds, even as it ups its exposure to banking, insurance, and industrial stocks.

Crunching the numbers earlier this week, Bloomberg concluded that Buffett appears to be reducing his “bets on consumer-products stocks.” If that’s what he is in fact doing, then this might bode poorly for an economy that depends on consumer spending for 70% of its growth.

Appearances Can Deceive

But the operative word here is “if”: If Buffett thinks a double-dip recession is imminent, and if he’s selling consumer stocks to avoid taking a hit, that would be bad news for our economy.

But what if Buffett has a different reason for selling his stocks? Some folks think that’s a more likely explanation.

Buffett biographer Andrew Kilpatrick, for one, thinks Buffett may be preparing to “fire at an elephant” — a euphemism referring to the megadeals Buffett has favored when spending Berkshire’s cash of late. At the Berkshire shareholder meeting in May, Buffett let slip that he’d been eyeing one big potential acquisition valued at roughly $22 billion. That deal ultimately didn’t happen — but maybe Buffett just needed a bigger gun.

Is he getting the big guns ready

It is quite possible that Buffett might be selling to build up for a massive cash reserve in order to go for some real big game hunting. Recent estimates put Berkshire cash reserves at around 40 Billion $, an increase of 2.8 Billion $ over the previous quarter.

But what could he be looking at?.

Run for the border: One thing’s for sure about Buffett: He’s no fitness fanatic. To the contrary, his fondness for cheeseburgers and Cherry Coke is legendary. Now that he has a little extra spending money jingling in his pocket, he might decide to take a look at YUM! Brands (YUM), owner of Taco Bell and KFC.

Buffett’s unlikely to balk at health guerillas’ objections to fast food. To the contrary, he’d more likely cheer the success Taco Bell has had serving less-than-organic Doritos-flavored taco shells. Still, the stock’s at the upper range of his spending limit with a market capitalization of just more than $30 billion.

• Trainspotting for bargains: But I think we can spot a better bargain. We all know how Mr. Buffett loves trains. (What growing boy doesn’t?) His purchase of Burlington Northern Santa Fe in 2009 made Berkshire one of the nation’s leading railroad operators. Today, for the low price of just $24 billion, he can expand his train set with the acquisition of either Norfolk Southern (NSC) or CSX (CSX). Plus, both stocks sell for P/E ratios of less than 13 — considerably cheaper than what Buffett paid for BNSF three years ago.

• An insure thing: Still, as much as he loves his trains, Buffett’s first love has always been insurance. For this reason, he may be particularly interested in insurer AFLAC (AFL), a relative bargain at just eight times earnings and even more affordable than the railroads — just $21.4 billion. As an added bonus, AFLAC would fit in nicely with Berkshire’s GEICO business.

• A deal that just might fly: Similarly, Buffett could find synergies with a purchase of defense contractor General Dynamics (GD). While suffering from a downturn in demand for armored fighting vehicles, America’s biggest tank maker has been sold down to bargain-basement levels — just nine times earnings. Buffett loves a bargain as much as anyone else. Plus, General Dynamics also makes Gulfstream business jets — the kind that fly so well for Berkshire’s “NetJets” airplane-sharing company.

A $30 billion-plus bank account opens many possibilities for Buffett. Will he spend it all in one place — perhaps even one of these places? Stay tuned.


Warren Buffett Likes Bank Stocks

25 July 2012
Warren Buffett likes bank stocks, just not investment banks. And for good reason.

By avoiding common stock bets on investment banks like JPMorgan Chase, Goldman Sachs, Citigroup, and Morgan Stanley the “Oracle of Omaha’s” financial sector share investments have greatly outperformed most other investors.

Of course, Buffett made preferred share investments in Goldman and Bank of America during the height of the crisis, but these were essentially super-safe loans that guaranteed a return and did not reflect his common stock plays.

In fact, as Buffett continued to hold banks stocks as a key part of a U.S. economic recovery investment, the value investing guru has kept his chips smartly behind Wells Fargo — which is projected to end 2012 as America’s most profitable bank — even if the battered share prices, titanic balance sheets, and boom and bust earnings of money center giants lure some of the sectors smartest investors into sub-par investments.

Although Buffett’s likely to have about the same insight as the “Average Joe” when it comes to a multibillion-dollar “London Whale” trading loss at JPMorgan, investment bank ratings downgrades, and a market manipulation probe that may start with Barclays and spread across Wall Street, his continued investment in the stability of traditional lenders like Wells Fargo, US Bancorp, and M&T Bank, and an investment in credit-card giants American Express, Visa, and MasterCard have greatly outperformed mega-bank stocks.

Since the 2008 Wall Street crash pummeled most bank stocks and a March 2009 stock bottom led to a tripling of the shares of megabanks like Citigroup and Bank of America, and a doubling of JPMorgan and Goldman Sachs within a span of just over a month, many financial sector investors and analysts forecast that those gains could be replicated.

nstead, the nation’s largest investment banks have underperformed, even as their shares gyrated upwards on misplaced optimism of a durable trading or deal making surge.

From March 2009 to May 2009, the largest investment banks were among the financial sector’s top performers, driving many investors including hedge fund titans John Paulson and David Tepper of Appaloosa Management strongly into the stocks of Citi and Bank of America. Since then, Morgan Stanley, Bank of America, Goldman Sachs, and Citigroup shares have all lost over 15 percent — and are among 10 S&P 500 bank stocks out of 85 in total that have lost double digits since May 2009, according to Bloomberg data.

While JPMorgan has gained over 17 percent since then, the Bloomberg data shows that Buffett financial sector picks like Wells Fargo, US Bancorp, M&T, American Express, Visa, and MasterCard have dramatically outperformed those returns. Wells Fargo is up over 30 percent since May 2009, US Bancorp and M&T have posted over 50 percent share gains, and American Express has doubled. Recent new Buffett financial sector picks like Visa and MasterCard are among the financial sector’s best performers in the past 12 months, posting 40 percent-plus gains to go against the Financial Select Sector SPDR’s [XLF  14.27    0.055  (+0.39%)   ] 2 percent share loss.

The data should tell investors that in spite of the press given to capital markets players with volatile earnings and recently battered share prices, they may be better off following Buffett into less glamorous banks stocks that are exposed to consumer and mortgage lending growth, and credit card names that may track rebounding consumer spending.

Fundamental investors may also have reason to follow Buffett, even if it’s less obvious whether superregional banks are a value investment. Following the results of the U.S. Federal Reserve [cnbc explains] stress tests in March, it was many of Buffett’s investments like Wells Fargo, U.S. Bancorp, and American Express, which led the way on share buyback plans and dividend boosts. Wells Fargo boosted its dividend 83 percent and indicated accelerated buybacks to a program launched in 2011. American Express unveiled a $5 billion buyback program of $5 billion and upped its quarterly dividend. Meanwhile U.S. Bancorp boosted its dividend by 56 percent and targeted $3.3 billion in buybacks.

In buying back stock, banks will lower total outstanding shares, thus boosting the proportion of earnings attributable to remaining shares. Using International Business Machines [IBM  191.08    0.74  (+0.39%)   ] as an example, Buffett explained in his annual letter in February how share buybacks can be a hedge to the prospect that a company’s shares underperform.

“When Berkshire buys stock in a company that is repurchasing shares, we hope for two events,” Buffett explained. “First, we have the normal hope that earnings of the business will increase at a good clip for a long time to come; and second, we also hope that the stock underperforms in the market for a long time, as well.” As a result, Buffett has a fundamental reason not to be concerned if the stock performance of IBM and Wells Fargo — both among his largest holdings with buyback plans — underperform in the near term.

As of March 31, Wells Fargo was Buffett’s second-largest stock investment at $13.2 billion or 7.42 percent of the company’s shares, while he held 13 percent of American Express shares worth over $8.8 billion, and $2.2 billion worth of U.S. Bancorp shares, or 3.6 percent of the company’s float.

But even without Buffett’s buyback math, the expected earnings prospects of traditional mortgage and credit card lenders may trump capital markets-oriented players. In March, we noted that because of Wells Fargo’s near 30 percent annual earnings growth trajectory, Buffett may end 2012 as the largest investor in America’s most profitable bank.

After JPMorgan unveiled a derivatives-related trading loss in May that may exceed $2 billion, Wall Street analyst now project that Wells Fargo will end 2012 as the most profitable U.S. bank, earning $17.7 billion for the year, according to Bloomberg compilations of forecasts. That contrasts to the $17.2 billion in adjusted net income that JPMorgan is expected to earn this year. Wells Fargo will earn the lion’s share of its profit and revenue from mortgage, business and credit-card lending, while JPMorgan’s earnings will be a mix of those businesses and its global investment banking operations.

It’s the distinction between Wells Fargo’s quick earnings ascendance relative to JPMorgan — the longtime profit leader throughout the financial sector — that may best exemplify the simplicity of Buffett’s investing plan relative to the elusive allure of investment banking profits.

JPMorgan, like Goldman Sachs, is undoubtedly a leader in investment banking, with a top three position in most key merger advisory and debt and equity underwriting markets. Still, a near 30 percent year-over-year lull in those businesses means that even top brands aren’t expected to post strong earnings. In fact, it’s the counterintuitive accounting gains that investment banks may post on the falling value of their debt after Moody’s slashed sector ratings that may be among the biggest positive surprises in second-quarter earnings.

Although many, like JPMorgan Chief Executive Jamie Dimon, expect that investment banking revenues will have a big comeback as companies enter a cycle of mergers and initial public offerings [cnbc explains] that was postponed by the European debt crisis and political gridlock in Washington, some think the industry’s woes may be lasting.

“[We] think the slowdown in capital markets revenues is more structural than cyclical,” wrote Standard & Poor’s credit analyst Richard Barnes in a July 2 note that outlined why the ratings agency sees new regulations, high expense and lasting macroeconomic risks as reason to question whether investment banks will even be able to out return their cost of capital in coming quarters and years.

The prospect of trading losses like those booked by JPMorgan and added political and regulatory pressures on the heels of a $450 million fine that Barclays paid to U.S. and U.K. regulators for its manipulation of short-term interest rates, and which cost CEO Bob Diamond his job, augur as added risks. Meanwhile, S&P’s outlook for investment banks is similar to what drove Moody’s to ratings cuts in June.

As it turns out, its Buffett plays like Wells Fargo and U.S. Bancorp remain a source of financial sector strength headed into second-quarter earnings, which are likely to be relatively disappointing. On Thursday, Credit Suisse analyst Moshe Orenbuch cut his earnings estimates for JPMorgan, Citigroup, and Bank of America because of their sensitivity to the weakness of capital markets. Among large-cap [cnbc explains] banks, Orenbuch left his earnings estimates for Wells and U.S Bancorp unchanged, while noting that throughout the industry, weaker capital markets revenue may be offset by loan growth and cost cuts.

Expectations of a housing construction rebound and mortgage demand have even given some reason to expect that Wells Fargo may surprise on the upside for the remainder of 2012. Amid continued uncertainty about the global economy, JPMorgan analyst Vivek Juneka said Wells Fargo was his best large-cap bank investing idea, in a June 2 sector outlook that cited the bank’s mortgage origination and loans businesses as standing apart from peers. Among mid-cap and small-cap banks, JPMorgan analysts highlighted First Horizon National as a top pick.

For those who are ready to throw in the towel on large-cap bank stocks like JPMorgan, Bank of America, and Citigroup, following Warren Buffett’s focus on capital returns, stable business models, and faster-than-industry average growth may be a simpler and more effective strategy.

Source –

Warren Buffett On Euro

25 July 2012

Warren Buffett says he’s worried about the fate of the euro zone, however despite signs of recent weakness, he remains optimistic about the US economy.

­Speaking about Europe, the 81-year old legendary investor and billionaire referenced Abraham Lincoln, saying a house divided cannot stand as he addressed the Economic Club of Washington.

“They can’t have a common currency, but not common fiscal policy or culture,” Buffett said. “It can’t be half slave and half free.” “European leaders need to resolve some of the union’s weaknesses.”

Buffet’s comments come as finance ministers and central bank governors from the Group of Seven economies agreed on Tuesday to coordinate responses to the crisis which threatens to destroy the region’s 17-nation currency union as Greece considers leaving the euro.

As Buffett touched upon the US, he was more positive, saying there is little chance the nation will slip back into recession in the near term, warning however that a second recession is unlikely “unless events in Europe develop in some way that spills over in a big way.”

He said Washington must address an unsustainable fiscal situation, claiming that both political parties deserve blame for the federal government’s failure to reduce the deficit. Buffet said Democrats must give in on cutting some social programs while Republicans can’t continue to stand in the way of tax increases.

Buffett, who is the Chairman of the Berkshire Hathaway holding company, also reaffirmed his support for the so-called “Buffett Rule.” The White House’s website describes the rule that no household making more than $1 million should pay a smaller share of their income in taxes than middle-class families pay.

“The Buffett Rule would limit the degree to which the best-off can take advantage of loopholes and tax rates that allow them to pay less of their income in taxes than middle-class families.”

The plan would require wealthy Americans to pay a 30 percent tax rate – a levy that would surely hit the billionaire more than the average American. Currently, like many wealthy Americans, much of Buffett’s income comes in the form of capital gains and dividends, which are taxed at lower rates than incomes.

Buffett joined the tax debate last August as he said he paid a lower tax rate than his secretary, claiming this to be unfair.


Warren Buffett sounds on 2013 Recession

As concerns mount that the United States is headed for a recession, two famous minds offered opposing takes on what’s in store for the U.S. economy.

In one corner was the Oracle of Omaha, Warren Buffett; in the other, the 42nd President of the United States, Bill Clinton.

Speaking at the 25th anniversary dinner of the Economic Club of Washington, Buffett said that it is unlikely the U.S. economy will fall into another recession. He said the chances of that happening are “very low.”

Buffett, who blames both political sides for the budget deficit, once again called for raising taxes and cutting spending.

“The problem is the Democrats don’t want to talk about what expenditures they would cut and the Republicans don’t want to talk about raising revenues,” he said.

Buffett said “the big question” remains what’s ahead for the euro.

“We’ve got this system where they’re half in and half out,” said Buffett, who is currently auctioning off a lunch with himself this week on eBay for charity. “They have to reconcile these things.”

Reflecting on the Eurozone he said there is the possibility the U.S. will feel a “spill over” effect from Europe – which some would argue has already happened.

Recession 2013: Clinton’s Take
In a taped interview that aired Tuesday on CNBC’s “Closing Bell,” former President Clinton said he thought the U.S. economy was already in a recession.

Clinton called out Republican efforts to cut the deficit, saying they jeopardize the country’s chances to get out of the debt debacle.

“What I think we need to do is find some way to avoid the fiscal cliff, to avoid doing anything that would contract the economy now, and then deal with what’s necessary in the long term debt-reduction plans as soon as they can, which presumably would be after the election,” Clinton said.

“They will probably have to put everything off until early next year,” he added. “That’s probably the best thing to do right now.”

Clinton made the unexpected endorsement of extending the Bush tax cuts but added that he is not in support of extending them for the wealthiest. This echoes the fundamental idea behind the Buffett Rule.

Clinton was also quick to blame Europe – saying “this European thing that’s having a bigger impact than people know” – and politics for the current economic mess.

“The thing that cost jobs here has been the Congress’s policies,” said Clinton.

For the Democratic Party, Clinton has been worrisome of late. Twice now he has publicly opposed U.S. President Barack Obama, while many Democrats still look to the former president for party leadership.

After the interview a statement was issued by Clinton’s office to “better explain” his comments to the public.

More Weak Reports Fuel Recession Talk
Debating about whether or not we are technically in a recession could escalate fears arising from several weak economic reports recently issued.

The U.S. Labor Department issued an awfully disappointing U.S. jobs report last week. Only 69,000 new jobs were added in May, less than half of the expected 150,000 jobs.

Coupled with the jobs numbers, the unemployment rate unexpectedly rose from 8.1% to 8.2% as job seekers returned to the workforce, the Labor Department report revealed.

To make matters worse, adjustments to previous months showed the economy gained fewer jobs in March and April than originally believed. March’s employment numbers were reduced by 11,000 jobs to total 143,000, while April’s dropped by 38,000 to total an awful 77,000.

On Wednesday the Labor Department released its Q1 productivity numbers which were disappointing as well. After an initial report cited a 0.5% decline, the Labor Department revised its numbers saying productivity declined 0.9% the past quarter.

Basically that means Americans are working more and producing less. And to top it off wage growth continues to trail inflation.

Adding up the recent jobs and productivity reports leave us with a pretty grim outlook for the state of the U.S. economy.

Buffett Health Concerns on Investor’s Minds

Health Okay, But Concerns Remain in Investor’s Minds.

OMAHA, Neb. — Warren Buffett worked to reassure shareholders that he’s feeling good after his recent prostate cancer diagnosis, and that Berkshire Hathaway is ready to replace the revered 81-year-old investor when the need arises.

Based on the questions Buffett got from the crowd of more than 30,000 at the company’s annual meeting in Omaha on Saturday, Berkshire shareholders are taking him at his word.

Despite the fact that Buffett just disclosed the condition last month, he didn’t face the first question about his health until well into Saturday’s questioning. Many of the questions at the meeting either focused in on technical aspects of Berkshire’s many businesses or dealt with general economic or political topics. One highlight of the discussion was the revelation that he recently attempted to make a more than $20 billion acquisition.

“I feel terrific. I love what I do,” he said. Buffett told shareholders that the survival rates for prostate cancer look so good that he thinks the diagnosis is a “non-event.”

It would hardly be the first time that Buffett’s assessment would be trusted. Widely known as the Oracle of Omaha, Buffett, 81, is considered the greatest celebrity in investing because of his many profitable decisions. Buffett has said his four doctors caught his cancer early, and it doesn’t represent a serious threat to his health. He plans to undergo radiation treatment in July, but the treatment should have little effect on his daily routine.

“I may have a little less energy, but that may mean I do fewer dumb things,” Buffett said jokingly.

Still, the diagnosis is forcing shareholders to confront the fact that one day Buffett will no longer be at the helm of the conglomerate, which includes an eclectic mix of companies such as Geico insurance, MidAmerican Energy, the Burlington Northern Santa Fe railroad, Shaw carpet, Helzberg Diamonds, the Nebraska Furniture Mart and Pampered Chef. Several questions dealt with related topics, such as who will replace Buffett when the time comes.

Buffett told shareholders in this year’s annual letter that the board has picked someone to succeed him as CEO if the need arises immediately, and it has two backup candidates. But Buffett hasn’t publicly identified his successor. During the business portion of the meeting, Berkshire shareholders overwhelmingly rejected a proposal that would have required annual updates on how the company is preparing to replace Buffett.

However, Buffett did address a challenge that his successor may face and talked about the way his successor will approach the job.

One of the first questions of the day was about whether his successor will be able to make the same kind of deals he has, such as the $8 billion Berkshire invested in preferred shares of Goldman Sachs Group Inc. and General Electric Co. during the crisis of 2008. Goldman and GE both wanted Buffett’s stamp of approval along with Berkshire’s money.

“I don’t think that every deal I have made could be makeable by a successor,” Buffett said.

But Buffett said his successor will still be able to make big deals because Berkshire has nearly $40 billion in cash on hand and is willing to invest large amounts quickly.

Buffett said deals like the ones with Goldman and GE haven’t been as important to Berkshire as investing in Coca-Cola Co. or IBM stock or buying entire businesses such as Iscar metalworking and Burlington Northern.

His eventual successor will maintain the company’s culture and continue to let key managers run Berkshire subsidiaries with little interference, Buffett said. He’s known for his hands-off, decentralized management style.

“You do not need to worry about my successor,” he said.

Shareholder John Zerngast, of Olathe, Kan., said the stock market might be uneasy about Buffett’s age and that of 88-year-old Vice Chairman Charlie Munger, but it shouldn’t be because of how much Berkshire’s 80-odd subsidiaries and investments are worth.

“I don’t worry about Warren and Charlie because the underlying value is there,” Zerngast said.

Besides all the companies Berkshire owns outright, it has major investments in such companies as Coca-Cola Co., IBM and Wells Fargo & Co. On Friday, Berkshire said its first-quarter profit more than doubled to $3.2 billion from last year’s $1.5 billion because this year’s results weren’t hurt by major disaster losses in Berkshire’s insurance units.

Buffett says the growth in the stock’s book value – the company’s assets minus liabilities – has outpaced the Standard & Poor’s 500 index in all but eight years since 1965 while delivering a compounded annual return of almost 20 percent. In recent years, Buffett has repeatedly warned investors not to expect that type of return in the future because Berkshire’s size makes it nearly impossible to keep growing at that rate.

That’s fine with George Jensen and his wife, Setara Jensen, who bought Berkshire stock as a stable option in retirement. The Jensens traveled from Hong Kong to attend the shareholder meeting and visit friends from when Jensen worked for Union Pacific railroad before retiring.

“We bought it because it’s a good value,” Jensen said. “There are certainly things that might have a higher rate of return, but at this stage, we wanted something safe and stable.”

Buffett said that he recently was negotiating a $22 billion acquisition that didn’t work out. He wouldn’t disclose the details, but he used the transaction as an example of the biggest acquisition Berkshire would make right now.

The company acquired Burlington Northern railroad in 2010 in a cash-and-stock deal valued at $26.7 billion that was Berkshire’s biggest acquisition ever. Buffett has always hated using stock in acquisitions, and he said Saturday that he now thinks it was a mistake to do so in the BNSF deal even though he is glad Berkshire owns the railroad.

Buffett also defended Berkshire’s purchase last year of the Omaha World-Herald Co. He said even though he has highlighted the challenges newspapers face, the deal still made sense for Berkshire, which already owned the Buffalo News and a large stake in the Washington Post Co. Newspapers are usually still the primary source of local information, and that’s an advantage in places where community is important, he said.

Buffett also defended political comments he has made while supporting President Barack Obama and lobbying for higher taxes on wealthy investors like him.

“When Charlie and I took this job, we did not agree to put our citizenship in a blind trust,” Buffett said.

Buffett always plays the role of Berkshire’s chief marketing officer at the annual meeting by showcasing products made by the company that are being sold in the 200,000-square-foot exhibit hall. On Saturday, he revived the newspaper tossing skills of his youth, promising anyone who can throw a folded Omaha World-Herald – one of Berkshire’s latest acquisitions – closer to the porch than him, a Dilly bar from Dairy Queen.

As Buffett roamed the exhibit hall, shareholders mobbed him, trying to take pictures with their cellphones. He spent time singing “There is No Place Like Nebraska” with the University of Nebraska’s cheerleaders at the Justin Boots stage before checking out the Burlington Northern Santa Fe railroad and BYD electric car displays.

The resolution submitted by the AFL-CIO to require updates on how the company would replace Buffett attracted about 32,000 votes while 672,000 votes were cast against the idea. The board and Buffett had opposed the idea.

The labor union’s Ken Maas said the group didn’t want Berkshire to publicly identify the 81-year-old Buffett’s successor. It just wanted an annual update on the planning.

Buffett said he doesn’t see any need to create a formal report on succession planning because he talks about it in his annual letter to shareholders and in interviews. Plus, the subject regularly comes up at the annual meetings.

“We spend more time on that subject than any other subject that might come before the board,” Buffett said.

Buffett has said Berkshire plans to split his chairman and CEO job into three parts with a chief executive, a chairman and several investment managers.

Buffett has said he believes his son Howard, who already serves on Berkshire’s board, would make an ideal chairman.

And Berkshire has hired two hedge fund managers, Todd Combs and Ted Weschler, over the past two years who Buffett says eventually will be capable of running the company’s entire portfolio. Buffett said Saturday that both Combs and Weschler were excellent hires, and the two men are now managing $2.75 billion each while Buffett oversees the remaining roughly $150 billion.

Buffett has said he remains in good health, and has no plans to retire because he enjoys running the conglomerate he built.

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Investment Snapshot and Charts Of Berkshire Hathaway


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Cost of Lunch with Buffet

OMAHA, Neb. (AP) — The cost to dine with investor Warren Buffett has apparently spiked in value, with one deep-pocketed bidder forking over nearly $3.5 million during a charity auction.  (YHOO)

The annual auction for a private lunch with the Nebraska billionaire closed following a flurry of activity in the final hours Friday night. In the end, the highest bid was a record-breaking $3,456,789.

The auction benefits the Glide Foundation, which helps the homeless in San Francisco. Buffett has raised more than $11.5 million for the group in 13 past auctions. The event provides a significant portion of Glide’s roughly $17 million annual budget that pays for social services to the poor and homeless.

“We just had a most amazing, shocking experience occur in our great city,” Glide’s founder, the Rev. Cecil Williams, said in a statement Friday night. “We are shouting, dancing, rejoicing and celebrating.”

The organization said Friday’s winner bidder wished to remain anonymous. Williams said 10 people actively engaged in bidding.

Buffett became one of the world’s richest men while building Berkshire Hathaway into a conglomerate. But he says most of the questions he gets at the lunches aren’t about investing.

As in past auctions, the bids didn’t reach astronomical levels until close to the end. Within the final hour of the auction’s 9:30 p.m. CDT closing, bids jumped from $1 million to the final $3.46 million.

Buffett has supported the San Francisco organization ever since his late first wife, Susan, introduced him to Williams. Buffett says Williams is a key reason why Glide has been able to help so many people after the world had given up on them.

“He’s changed thousands of lives that would not have been changed otherwise,” Buffett said before the bidding closed.

The previous four winning bids have all exceeded $2 million with records set every year. Last year’s winner, hedge fund manager Ted Weschler, paid $2,626,411.

In fact, Weschler paid nearly $5.3 million to win both the 2010 and 2011 auctions, and he wound up getting hired by Buffett last year to help manage Berkshire’s investment portfolio. Buffett says he doesn’t expect to find another new hire through the auction.

Buffett’s business brilliance and remarkable record of investment success as Berkshire’s chairman and chief executive is a big part of the draw for bidders, though he won’t talk about potential investments.

And Buffett has also made a mark on the world of philanthropy, so past winners of the lunch have also wanted to discuss giving. Buffett has slowly given away his fortune since 2006, and he plans to eventually divide most of his shares of Berkshire stock between five charitable foundations. The largest chunk will go to the Bill & Melinda Gates Foundation.

Buffett and Gates have also been encouraging other wealthy people to give away at least half of their fortunes. Nearly 80 of the nation’s wealthiest families have signed the pledge.

The Glide auction’s winners traditionally dine with Buffett at New York’s Smith and Wollensky steak house. The restaurant donates at least $10,000 to Glide each year to host the auction lunch.

Past winners of the auction have said they believe the time with Buffett was well worth the price they paid in the auction. The lunches often continue for several hours as Buffett answers their questions.

Buffett says many of the questions he gets at the lunches are about nonbusiness subjects such as family and philanthropy.

Buffett’s company owns roughly 80 subsidiaries including insurance, furniture, clothing, jewelry and candy companies, restaurants and natural gas and corporate jet firms, and has major investments in such companies as Coca-Cola Co. and Wells Fargo & Co.