The Early Warren Buffett

I still haven't gotten around to reading the near 1,000 page Warren Buffett biography, The Snowball, though it's on my reading list.

However, I had a few minutes to kill yesterday, before a meeting, and wandered into a bookstore and happened upon the book. Glancing through the early chapters, I found a hilarious account of a young Buffett attempting to become a weight lifter.

Then there are tales about another part of the young Warren Buffett that have never been public before.

Buffett, along with a buddy,create slugs to get sodas out of vending machines for free. Author Alice Schroeder quotes him as saying his philosophy was "cash in, slugs out".

There was also a reference to some type of shady moves by Buffett at Sears, but, in the time I had, I couldn't find the story to which the reference was made. Stay tuned.

The Obama Press Conference: John Maynard Keynes and the Oligarchs Are Alive and Well

John Maynard Keynes and Oligarchs appear to be alive, well and ready for the Obama Administration.

In Barack Obama's first press conference, since winning the presidential election, Obama sounded like a typical big spending Democrat. In opening remarks, he called for a "rescue package" for the middle class, unemployment extensions and other fiscal stimulus. He also said that something had to be done for the automobile industry since it is "the backbone of the country." Somewhere, John Maynard Keynes and Marx are blushing.

Obama did not address how any of these proposals would be paid for.

I took special note of some of the members of his "economic transition advisory team", most of whom stood behind him as he promised to do vasts sums more spending than Imelda Marcos ever did during a good shoe shopping trip to New York City. It was a politically correct mixed crowd that included many women, a Latino and even another African-American, interspersed with oligarchs. Just what you need to fight a downturn in the economy, a politically correct group and oligarchs.

The oligarchs we were told included Warren Buffett (who, golly shucks, usually just represents himself) and Robert Rubin (former Goldman Sachs CEO, now running the Rubin/Citigroup wing of Goldman),but both failed to appear in chorus line fashion behind Obama for the press conference, as did the politically correct and other oligarchs and oligarch representatives.

At the press conference chorus line, the towering Paul Volcker was there, who has been a career long Rockefeller operative. The tiny Robert Reich was there, who was most likely invited as a reward for his regular bashing, on his blog, of Hillary, during the primaries.

An oligarch stepped a bit out of the shadows for the chorus line, Chicago-based Penny Pritzker, who was an early Obama backer, was there. Pritzker served as Obama's National Finance Chair. She and her husband hosted a $28,500 per plate fundraiser for Obama's campaign in Chicago with Warren Buffett and his wife, and Obama advisor Valerie Jarrett. She is also a member of the Council on Foreign Relations. She is 135th richest person on the Forbes 400 list of "America's wealthiest," with an estimated net worth of $2.8 billion US. If one was forced to come up with one name that Obama answers to, Penny Pritzker would not be a bad choice. They are on each others cell phone speed dials, guaranteed.

The Chicago Political Machine was well represented by Mayor Richard Daley's brother William, who also is a member of the executive committee at JP Morgan Chase.

Google's Chairman Eric Schmidt was part of the chorus line.

Much to my surprise, Los Angeles Mayor Antonio Villaraigosa was the token Latino. Readers will recall I had a Q & non-A encounter with the mayor, only a few weeks back.

In short, no one in this group strikes me as the type that understands Say's Law, never mind the business cycle. They all are very good, though, at protecting the very powerful interests that they are aligned with, nothing else. The oligarchs are sleeping very well tonight.

Alert: Obama Press Conference

US President-elect Barack Obama and Vice President-elect Joe Biden will hold a news conference at 2:30 EST on Friday after meeting with their team of economic advisers to discuss the transition to the White House.

Obama and Biden will be joined by economic advisers, including former Treasury Secretaries Lawrence Summers and Robert Rubin, former Chairman of the Federal Reserve Paul Volcker, former Securities and Exchange Commissioner William Donaldson and several others. Berkshire Hathaway Chairman Warren Buffett will participate via phone.

All major networks are expected to carry the press conference live.

Obama's Core Belief System

The soundbites off the release of the Obama Chicago Public Radio interview, do not surprise U.S. News and World Report's James Pethokoukis:

This should be a Saturday Night Live sketch. Use the court to redistribute wealth? Really? The Warren court was not radical? Really? Anyone could craft a theoretical justification to use the court to spread the wealth? Really? This all strikes me as highly weird...Keep in mind, now, that every Obama economic adviser I can think of—Warren Buffett, Austan Goolsbee, Jason Furman, Robert Rubin, Lawrence Summers, Jared Bernstein—thinks that we need higher income and investment taxes to deal with income inequality and that tax rates would pretty much have to double before they would hurt the economy. So Obama's comments reflect a core belief system that he's apparently held for years and continues to hold.

Will we yearn for the days gone by when only the banks were nationalized and Paulson stuffed billions into the pockets of his crony buddies?

In Defense of Warren Buffett (Sort of)

With defenders like me, Warren Buffett doesn't need enemies, but I feel that I must rise to his partial defense, given the most recent attack on Buffett by Karen De Coster.

De Coster today pens a mostly accurate portrait of the evil side of Warren Buffett.

She is especially strong in calling him a propagandist for government. Since his purchases of Goldman Sachs and General Electric have been coupled with his cheering on the Paulson Plan, what else can be expected? He is clearly among the new American Oligarchs.

She is trying to split hairs,though, and incorrectly at that, when she writes:

..he's telling us that the profits will be there in "5, 10, and 20 years." Is it 5 or is it 20? Or anything in between? Or more than 20 years?

Notice how in her attack she uses the conjunction "or", while Buffett used the conjunction "and". Thus, if we assume that Buffett is attempting to properly use, and has successfully done so, English grammar, then he believes there will be profits 5 years out, and 10 years out and 20 years out.

De Coster gets back on track when she calls Buffett a redistributionist:

In retrospect, Warren Buffett’s posture on political issues shows us that in spite of being a remarkable value investor, he has sanctioned collectivist state hysteria and policies from climate change to taxes to fiscal policy. In fact, his nod of approval for some of government’s most destructive taxation tactics has clearly distinguished him as an unabashed redistributionist.

But, Buffett is one of the most quirky characters to ever come on to the investment scene. While De Coster justifiably attacks the letter for its coming out to serve government interests, the letter also has some of the most sage advice I have seen during this period of financial crisis. Advice that De Coster fails to identify or discuss. Specifically, Buffett writes:

Today 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.

There is no other way to interpret this then that Buffett believes significant inflation is ahead and that cash will depreciate while it is in your hands. On this point, Buffett is 100% dead on. As I wrote earlier this week, no truer words have ever been written by an Oligarch.

Barack Obama, Paul Volcker and Warren Buffett

It appears that Paul Volcker will be a major influence in a Barack Obama Administration.

WSJ this morning has a front page article by WSJ reporter Monica Langley describing the development of their relationship. The Volcker connection should calm markets a bit if there is an Obama Administration, since he seems to be taking advice from Volcker and Warren Buffett. Volcker is even more respected on the Street than Buffett.

Volcker, however, as I pointed out recently, despite his image as an inflation slayer, is an inflationist and interventionist. Buffett is pretty much out of the same mold. He has supported the recent moves by Treasury Secretary Paulson and Fed Chairman Bernanke. Curiously, while supporting Treasury and Fed moves, Buffett in his recent WSJ piece even pointed out the inflationary ramifications of the policy:

Today 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.

Another Billionaire Bit By The Economic Squeeze

We recently reported on the possible liquidation by 85 year old billionaire Sumner Redstone of parts of his huge portfolio as a result of current financial conditions.

Although not in as tight a position, 91 year old billionaire Kirk Kerkorian has sold part of his stake in the Ford Motor Company and may divest his remaining shares

The Tracinda Corporation, Kerkorian’s investment company, said this morning that it sold 7.3 million shares of Ford on Monday at a huge loss and intended to further reduce its remaining 6.09 percent stake.

In a statement, Tracinda said that “current economic and market conditions” and other investment opportunities — in gambling and energy — led to its decision on Ford.

“Tracinda also stated that it intends to further reduce its holdings in Ford common stock,” the company said. “Including the possible sale of all of its remaining 133.5 million shares, depending on market conditions and available sales prices.”

When you get the likes of Redstone and Kerkorian taking huge hits, you know this is a serious downturn. These guys have seen a lot, but they obviously aren't up to date on business cycle theory, or they would have been protecting themselves in July at much higher prices.

Warren Buffett Contradictions

I have always suspected that Warren Buffett often has an agenda when he speaks to the public. But the man is tough to nail down on anything, given his Golly Gee public persona. He's sharp and rarely slips up. He slipped last week.

In his NYT article last week urging Americans to buy stocks, he wrote:

I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds.

He even got a little technical about it:

(This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.)

Which appears to be a problem in the fact department, since in November, 2000 the LA Times reported this:

Warren Buffett, the billionaire investor who caused a stir last year when he bought a big stake in tiny Bell Industries Inc., sparked a rally in Bell’s stock and then quickly sold out for a handsome profit, has once again bought a sizable position in the El Segundo company–again sending its stock sharply higher.

Buffett bought 442,200 shares, or 5.1%, of Bell’s common stock outstanding, according to a filing with the Securities and Exchange Commission. In response Wednesday, Bell’s thinly traded stock jumped $1.06 a share to close at $3.13 on the American Stock Exchange.

Buffett–who controls Berkshire Hathaway Inc., an Omaha, Neb.-based holding company for his investments and operating companies–once again bought the Bell stock with his own money, not Hathaway’s. And as investors learned the last time, that’s an important distinction for anyone evaluating Buffett’s interest in Bell.

The Times article goes on to say:

Despite Berkshire Hathaway’s record of patiently holding stocks, Buffett himself often makes small, quick purchases of stocks with his own money to generate income, according to people familiar with his investment habits. That’s especially true if he’s confident of generating a low-risk, sizable return in short order, they said.

This seems consistent with reports in one or more biographies (I don't recall which) and is probably accurate. His trading in Bell Industries is a fact backed up by SEC filings.

I have long suspected Buffett is operating with cards he isn't showing. He just dropped one on the floor. In my book, he is just smooth operator in the oligarchy.

Cheerleader Warren Buffett Warns On Inflation

Warren Buffett, whom I consider to be part of the new American Oligarch class, has written an Op-Ed piece that is published today at NYT.

In the piece, Buffett takes on the role of cheerleader for the American stock market. He tells us that for the first time he is buying stocks for his personal account.

Buffett's argument in favor of buying stocks is that in the long run they always go up--and he has the data from the 1930's to date to prove his contention. But the one thing Buffett does not point out in his article is that the current United States is much different from the United States of the 1930's to approximately the year 2000. During this period the United States was a growing, sprawling Empire. But, current day America is different. It is stretched thin. The Empire has debt owed to nations around the world. It has domestic obligations in the form of Social Security and Medicare that will soon haunt. And regulations grow on the creative business sector on a daily basis. This isn't the America Warren Buffett grew up in. It is unlikely the stock market will perform the same.

This does not mean there will not be opportunities for investors, but they will be different kinds of opportunities. Those who are quick to identify changes in macro-economic trends and find the stocks that benefit from those changes in trends will do extremely well. Those who truly dig into the fundamentals of companies and find the niche operators that outperform in the overall oppressive environment will also do well.

This does not mean that stocks in general won't go up, it will be a roller coaster period for them because of very strong inflation. The trick will be though to find the stocks that outperform the coming inflation.

Buffett understands very well that this inflation is ahead. He writes in his article:

Today 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.

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree.

Truer words have never been written by an Oligarch to the general public.

A Fascinating Warren Buffett Interview

The $700 Billion Paulson Plan forced many oligarchs on to television, to promote the bill. Carlyle Group's David Rubenstein appeared on CNBC and Warren Buffett sat down for a one-hour interview with Charlie Rose.

Despite the fact that Buffett has gone over to the dark side by, among other things, aggressively pushing for the Paulson Plan, while he will personally benefit, most obviously, through his recent multi-billion dollar investments in Goldman Sachs and General Electric, he is still a great investor and there are some fascinating observations he makes during the interview.

First, one has to be amazed at Buffett's command of facts. You can see from this understanding of facts part of why he is a great investor. He simply knows more than most investors.

During the interview, he mentioned, for example, that the crisis to date has resulted in the shifting of bank deposits from one institution to another, to the tune of 8% of all bank deposits. Who else in the world knows it was an 8% shift? In passing, he also off the top of his head mentions these data points: The real estate market is roughly a $20 trillion in size, as is the stock market. That Americans import $2 billion per day more in goods than are exported from the U.S. and that at the time of the interview Treasury Bills were yielding .2%.

On another note, he does mention that all the bailout activities will result in higher inflation. A very important warning.

It can be seen that he is also a great communicator. In his easy going "Farmer Joe" posture, he is disarming in getting his message across.It is even difficult to pick up the purpose of the interview. That is until the very end of the interview when Charlie Rose recaps key points, which all happen to be about why the Paulson Plan is a good thing. Rose knows, of course, that he has to make clear the points Buffett really wants to get across, if he ever wants to see Buffett on his show again.

A few other points from the interview.

Buffett doesn't seem to understand business cycle theory, even though he mentions that there are slowdowns in the auto, furniture and jewelry businesses--all in the capital goods area (High end jewelery is a capital good). All of which would be expected given Austrian Business Cycle Theory But, Buffett fails to make the point that these sectors are where weaknesses in the economy would be expected during a downturn.

Buffett also gets on his soap box re: his call for higher capital gains taxes, which clearly indicates how little, at some level, he understands about the importance of capital goods in raising a country's standard of living.

Also note that Buffett emphasises that any mortgages purchased should be at market prices, not face value, which means in no way does Buffett see this as a bailout for banks in trouble. The mysterious goal of unfreezing junk paper as justification for Paulson's $700 billion request remains intact.

The Oligarchs Win...

...not exactly surprising. The Paulson Plan has passed the House and has been signed by GW.

Other than to emphasize that billionaire Warren Buffett, one of the wealthiest men in the world, will likely be a major beneficiary of this bill, I have nothing new to add to what I have already posted on the topic:

Mr. X Has Read the Senate Version of the Paulson Plan...

The Very Clueless New York Times

Warren Buffett As Fear Monger...

Buffett Boosts His Oligarch Credentials, Again

FDIC Insurance Increase: Ground Cover for Paulson Bill

The Paulson Plan Is Dissed, What Next?

The Paulson Plan And The Rise Of The American Oligarch Class

THE BIG LIE: The Supposed Paulson 'Bailout' Plan

The Bad News Bailout

Henry Paulson, American Oligarch

The New Warren Buffet Book, Snowball, Is Out

I stopped into a bookstore this afternoon and noticed the Alice Schroeder biography of Warren Buffett, Snowball, is out. The book is 960 pages. My plate is quite full right now so it is going to be sometime before I get around to reading a 960 page book.

I did skim through the book, however, and my quick impression is that it is a full biography of Buffett and not by any means an investment primer, or an "investment secrets of Warren Buffett revealed" book.

That said, the book appears to be very thorough about the pre-Oligarch Buffett. The pictures in the book alone, indicate the access Schroder must have had to Buffett. They are not the same tired old pics. Schroeder is former research analyst and my guess is the book is packed with anecdotes providing insight into Buffett the investor. On first glance, it probably is a book that will be required reading for any serious investor in common stocks.

I plan to write a full review of the book once I read it, but, again, that will be sometime down the road..

-Robert Wenzel

Tag Teaming Alongside Bob Murphy

Yesterday, Bob announced at his blog, Free Advice, that he has placed CNBC contributor, Patricia Chadwick, right next to CNBC's Jim Cramer, on his never read again list.

The sin that warranted this banishment by Bob, according to Bob was :

I have criticized Chadwick before. But that was nothing. In today's "article," she offers absolutely zero arguments. She simply asserts that the American people are idiots--though understandably so, in Chadwick's condescending pity--for thinking the Paulson Plan a bad deal. And then, in order to placate those readers who maybe
wanted some evidence or something, Chadwick links them to a Tom Friedman (!!) oped on why Americans should support the bailout. You know, noted economist and
successful day trader Tom Friedman?

So I wandered over to CNBC to get a sense for what was going on. And Bob, the only thing I can say is LET ME IN THE RING!

Not only does she not provide any sound argument, but in her appeal to authority she not only uses Tom Friedman ( And Bob, this guy Friedman is an analyst. He writes in his column that he's frightened for the country and it has happened before: "I’ve been frightened for my country only a few times in my life: In 1962, when, even as a boy of 9, I followed the tension of the Cuban missile crisis." The guy was frightened at 9, Bob. Not for himself, but for his country! AT 9! So what were you doing at 9, Bob? I didn't even, independent of Ludwig von Mises, discover the Regression Theorem until I was 11. )

In addition to Friedman, she drags out Pimco's Bill Gross as an expert:

Unfortunately, despite dire warnings from sage and respected investors such as Warren Buffett and Bill Gross...

Oh yeah, the sage and respected Bill Gross. That's the same guy who jumped up and down on CNBC screaming that the government needed to bailout Freddie and Fannie. And we learned only later that the Pimco portfolio he managed was loaded with so much Freddie and Fannie paper that the portfolio increased over a billion dollars after the bailout was announced. And she thinks this Newport Beach hustler can be trusted?

I am only giving her a pass on Buffett because at the time she wrote, Buffett had only pigged out on Goldman Sachs and had not yet feasted at the table of that other insider monster G.E., and, also at the time, it still wasn't clear that Buffett is likely to be the largest beneficiary of Paulson's Plan.

So Bob, I got your back on this one. I think we are ready.

-Robert Wenzel

Warren Buffett As Fear Monger...

Billionaire Warren Buffett said the U.S. economy is ``flat on the floor'' after a cardiac arrest as companies struggle to secure funding and unemployment increases.

``In my adult lifetime I don't think I've ever seen people as fearful, economically, as they are now,'' Buffett said today in an interview with Charlie Rose to be broadcast tonight on PBS. ``The economy is going to be getting worse for a while.''

Yeah, right.

How nervous is Buffett about the economy? Last week he made a $5 billion investment in Goldman Sachs. This week he made a $3 billion investment in General Electric.

As I have pointed out, he will most likely be the largest beneficiary of Paulson's $700 billion Plan.

-Robert Wenzel

Buffett Boosts His Oligarch Credentials, Again

Last week, billionaire Warren Buffett bought into Goldman Sachs with a $5 billion investment. Today, General Electric announced that Buffett is buying $3 billion of perpetual preferred stock from it.

GE has fallen 42 percent this year as a result of negative reyurns from its huge finance arm.

Both, Goldman Sachs and General Electric will be major beneficiaries if the $700 billion Paulson Plan is passed. Thus, the most significant beneficiary of the $700 billion Paulosn Plan is the richest man in America. Cute.

Buffet's father, Howard, is surely turning in his grave. The senior Buffett was an old school conservative. He most assuredly would have preferred dying a pauper then to accept or benefit from government "bailout" money in anyway.

On CNBC today Boone Pickens said that "[Treasury Secretary] Paulson is in communication with Buffett; that's good. The coach is out there in Nebraska. It's a nice, quiet place to think. He's available."

So Pickens, who has been hawking a bailout in advance of his future money losing wind turbine project, knows Buffet is talking to Paulson. Guys, this is one small club.

-Robert Wenzel

Buffett Orders A Major Halt In Insuring Bank Deposits; 1,500 Banks Impacted

Is Warren Buffett scared of the risks in the banking sector? I think so.

Buffett's Berkshire Hathaway Inc. has told one of its subsidiaries to stop insuring bank deposits above the amount guaranteed by the federal government, WSJ is reporting.

The subsidiary, Kansas Bankers Surety Co., is notifying about 1,500 banks in more than 30 states that it will no longer offer a program called "bank deposit guaranty bonds."

-Robert Wenzel

Another Warren Buffett Book With, Yet, Another Woman

Last week, we noted that a new book on Warren Buffett was due out, The Snowball: Warren Buffett and the Business of Life.

In our post we noted that Buffett gave unique access to the author, Alice Schroeder, and seemed to give preference to women over men when it came to interviews and the like.

Now word is out that another Buffett biography is due out in January 2009. Same modus operandi, Buffett co-operating with a woman. This time Janet Tavakoli.

Tavakoli's book, Dear Mr. Buffett: What An Investor Learns 1,269 Miles From Wall Street, according to the publishers blurb:

takes you into the world of Warren Buffett by way of the recent mortgage meltdown. In correspondence and discussion with him over 2 years, they [Tavakoli and Buffett]both saw the writing on the wall, made clear by the implosion of Bear Stearns. Tavakoli, in clear and engaging prose, explains how the credit mess happened beginning with the mortgage lending Ponzi schemes funded by investment banks, the Fed bailout and its impact on the dollar. Through her narrative, we hear from Warren Buffett and learn how his enduring principles caused him to see the mess that was coming well in advance and kept him and his investors well out of the way.

HTnick

Major New Warren Buffett Book Due Out In September

Warren Buffett prefers being interviewed by women. I can't think of a time that Buffett has sat down for a major television interview by a male. It's the same with major magazine articles, always women. When Buffett wanted research coverage for Berkshire Hatahway in the late 1990's, he turned to a female.

His latest favorite at CNBC appears to be Becky Quick. Quick travelled with Buffett to Asia. When it comes to print, Janet Lowe at Fortune has been his long time choice for interviews. For the research report in the 1990's he called upon Alice Schroeder. And, now, when he has decided to give additional access for a biography, he gave that access to a woman. The same Alice Schroeder he cooperated with for the research report.

Schroeder's book, The Snowball: Warren Buffett and the Business of Life, is due out Sept. 29. According to WSJ, Bantam paid $7.2 million for the North American rights and expects to sell more than 1 million hardcover copies.

Buffett gave her open access to two large file rooms that included material on his investments, his correspondence and topics of personal interest, she says. She says he provided her with a letter that she was able to show to people she wanted to interview that confirmed he was cooperating with her, according to WSJ.

The books title apparently comes from a Forrest Gump type comment of Buffett's "Life is like a snowball. The important thing is finding wet snow and a really long hill."

Buffett: China Will Do Better Than The U.S. In Coming Years

In his near final comments during a three hour marathon on CNBC's Squawk Box Warren Buffett said he would be surprised if Berkshire doesn't "do something" in China in the next few years. Any investment there would probably be an extension of his existing businesses. He says the U.S. will do well, but the Chineses will do better because they're starting from a lower base and have really learned how to unleash the potential of their people.

Buffett Disses Homebuilder Stocks

Buffett says he has no interest right now in buying any homebuilder stocks. They still have plenty of problems.

Buffett predicts housing market recovery will take some time, probably years.

Buffett Another Biggie Financial Institution May Fall

Buffett says it's possible there could be another financial firm imposion along the lines of Bear Stearns, but it would be "inappropriate" to comment on any specific companies right now because it could undermine confidence.

Buffett Says Their Should Be A Class Action Suit Against John Edwards

Yes, sue poltiicians! I'm all for it.

Buffett says he didn't give any money to the John Edwards campaign, but if he did he might be asking for his money back. Buffett muses that there should be a class-action suit brought by contributors who want their money back because Edwards was soliciting funds while lying about an extra-marital affair that would prevent him from ever becoming President.

Buffett: Has No Bets Against The Dollar; Stocks More Attractiive Than A Year Ago

Buffett still on CNBC's Squawk Box says he has no bets against the U.S. dollar right now and no direct currency plays. He also notes that stocks are generally more attractive now than they were a year ago.

Are there bargains in the stock market? Buffett says yes, there are companies that are better today than they were a year ago selling for lower prices. When he gets calls from someone who has just lost billion of dollars and wants to be replenished, he doesn't get that excited. He points out that when someone tries to sell something to you, like an investment, it probably isn't worth buying. The best ideas come from your own ideas and digging.

Buffett: Reasonable Chance Fannie and Freddie Will Be Wiped Out

On CNBC's Squawk Box Warren Buffet said that there's a "reasonable chance" that Fannie and Freddie's equity will be wiped out. They keep existing because they're backed by the government, and the government should continue to support them, expect for the equity portion. He notes that Berkshire had been a big holder of the GSEs before selling the entire stake around 2000 and 2001.

Is It Time To Put A Presidential Candidate In Your Pocket?

The presidential campaigns are going begging for super-CEO support, but keep in mind these CEO's know how to collect on a chit when it is time. If a CEO is on one of the lists of support below, he considers the candidate he is endorsing in his pocket. .

Monca Langley at WSJ reports:

In the contest for business approval, the campaigns are lining up "poster CEOs." Sen. McCain has FedEx Corp. Chairman Fred Smith, private-equity guru Henry Kravis and Merrill Lynch & Co. CEO John Thain.

McCain plans to release the "Tech 100" -- high-tech executives who back his economic plans, a list the campaign says includes Cisco Systems Inc.'s John Chambers and Scott McNealy, chairman of Sun Microsystems Inc...

[F]ormer chief executives Carly Fiorina of Hewlett-Packard Co., or Meg Whitman of eBay Inc., back up Sen. McCain on the stump.

In Sen. Obama's camp are investor Warren Buffett, former Federal Reserve Chairman Paul Volcker and Robert Wolf, president of UBS Investment Bank...

The Obama campaign is also enlisting [other] heavy hitters. A few weeks ago, the Obama campaign, led by billionaire Penny Pritzker and J.P. Morgan Chase & Co. executive William Daley, invited a group of business executives to a meeting in New York, including some who had supported Sen. Hillary Clinton, such as former deputy Treasury Secretary Roger Altman and private-equity financier Steve Rattner

Henry Kravis is campaigning for McCain for one reason and one reason only, he doesn't want Obama in with his heavy tax hand on the rich. It would impact Kravis big time.

I don't have a clue why Paul Volcker is supporting Obama, but it does mean one thing. If Obama gets in Ben Bernanke is a one term Fed chairman. Volcker has no respect for Bernanke.

The Pritzkers are the real big money, early money behind Obama.

Obama supporter, Warren Buffett is kind of an idiot savant, he is an investment genius, but when it comes to economic understanding or basic common sense, he has none. The man has bllions, and still lives in the same house as when he only had $10 in his pocket, which means he is also a very odd duck. Obama can have him.

Warren Buffett Live

This should be interesting.

Warren Buffett, the investment genius, is not an economic genius.

Thus, Buffett will be discussing live, what else? The economy.

Buffett, CEO of Berkshire Hathaway; William Niskanen, chairman of the CATO Institute; Bill Novelli, CEO of AARP; Pete Peterson, senior chairman of The Blackstone Group and chairman of the Peter G. Peterson Foundation; and Dave Walker, president & CEO of the Peter G. Peterson Foundation and former U.S. Comptroller General will engage in a panel discussion LIVE from Omaha, Nebraska on August 21.

The discussion will explore the growth of the national debt and what can be done to make the nation more fiscally sound. Questions will be taken from the live audience in Omaha and through www.IOUSATheMovie.com. The discussion will begin following the viewing of the documentary “I.O.U.S.A.”

Sounds to me like there is an agenda here. We will just have to wait until August 21 to find out.

Berkshire Hathaway Stock Down 25%

Warren Buffett's Berkshire Hathaway class A shares closed exactly 25 percent below the all-time high set last December.

Today's closing price of $111,900 per share is the lowest for the stock since August 15.

Berkshire is down 21.0 percent in 2008, underperforming the benchmark S&P 500 stock index, which has dropped 15.9 percent this year.

Obama's Economic Brain Trust?

Barack Obama plans to meet a panel of advisers today to examine his campaign’s ?economic policies. The gathering will include Warren Buffett, the billionaire ?investor, Eric Schmidt, Google’s chairman, Paul ?Volcker, the former Federal Reserve chairman, and ?both Lawrence Summers and Robert Rubin, the former Treasury secretaries.

Obama told NBC on Sunday that the team would discuss a second potential stimulus package, ways to shore up the housing market, and energy and infrastructure initiatives.

Let's see what comes out if this group. You have Goldman Sachs represented through Robert Rubin. You have the great investor Warren Buffett who turns into an economic idiot whenever he talks about economic policy.

Was Warren Buffett Lucky When He Made A $2.75 Billion Profit Investing In Freddie Mac?

Warren Buffett said during Congressional testimony last October that he bought stock in Freddie Mac in the 1980s because "it looked ridiculously cheap".

He said his company became one of Freddie Mac's largest shareholders before he began liquidating its stake in the late 1990s at an eventual profit of about $2.75 billion.

So did Buffett bail because he saw all the dumb mortgages Freddie Mac was making? Nope.

He bailed because Freddie Mac made an investment unrelated to its mission. He wasn't clear, according to WaPo, on the specifics but said he "didn't think that made any sense at all" and "was concerned about what they might be doing . . . that I didn't know about."

Luck or a good sixth sense? We'll let you decide.

In April 1999, it closed at $62.63 per share. Today, it closed at $7.75 per share.

The Everyday Billionaire

Warren Buffett's partner, Charlie Munger, who has a net worth in the billions, frequents downtown Los Angeles. He has office space downtown at a law firm where he is a partner. A friend tells me he also hangs out at the California Club, which is also downtown, about a five block walk from his office. I have seen him walking from his office to the Club many times. I truly get the sense that as he passes through the semi-crowded streets, without a bodyguard, I am the only person who knows who he is. No one turns, no one looks at him. (In contrast, I have seen Donald Trump walk from his building on Fifth Avenue, everyone stops and looks.)

According to my friend, when Munger is at the California Club, he sits in a chair and reads one newspaper after another after another.

I have seen him sitting and eating breakfast at the downtown McDonald's, reading The Wall Street Journal.

Just last week, he passed by me and I introduced myself. He is in his mid-80's, but was as sharp as a tack. Interestingly, newspaper in hand, he again had no bodyguard and his clothes would leave you to believe he probably maxed out at 500k net worth, if that. He had on a red plaid shirt with thick orange and brown stripes. His suit jacket didn't match the suit pants he was wearing.

If you didn't know who he was, you would probably take him for a well off farmer, coming into town to get a problem with his car registration straightened out.

Buffett's Berkshire Has Worst First Half Since 1990

Warren Buffett's Berkshire Hathaway Inc. has slumped almost 20% since December. The decline exceeds the drop of the Standard & Poor's 500 Index, which is down 15%.

Buffett holds significant positions in banking stocks that are down substantially. As of the end of March, Wells Fargo & Co., American Express Co. and U.S. Bancorp, were three of the Berkshire's 10 biggest equity holdings.

Margins are declining in the insurance industry where Berkshiire also has major holdings. "That party is over," Buffett wrote in his annual letter to shareholders in February. "It is a certainty that insurance industry profit margins, including ours, will fall significantly in 2008."

In Profile: Zhao Danyang

So who is Zhao Danyang, the man who paid $2.1 million to have lunch with Warren Buffett?

Mr. Zhao manages Pure Heart Asset Management, based in Hong Kong. He says he invests based on "logic and reviews of financial statements", but he told Euromoney that "...he has [also] sneaked into factories to talk directly to workers of a manufacturer, checked sell-by dates on bottles of pills to ascertain stock turn levels for a Chinese medicine company and even resorted to counting cars on the highways of a toll road operator."

The former consumer electronics factory owner is dong well as a fund manager. According to data supplied to us by Pure Heart Management.

In 2003, Pure Heart China Growth Investment Fund showed a return of 46.51% (versus 29.7% for the Hang Seng Index). In 2004, a return of 23.86% (versus 13.5% for the Hang Seng Index). In 2005, a return of 31.64% (versus 4.5% for the Hang Seng ndex). In 2006, a return of 141.75% (versus 34.2% for the Hang Seng index). In 2007 a return of 10.70% (versus 37.02% for the Hang Seng Index) and for the first 5 months of 2008, a decline of 9.70% (versus a declne of 7.4% in the Hang Seng Index).


Mr. Zhao claims to use "the spirit of the professional paparazzi" to probe deep into the companies he examines. He is dedicated to fundamental research and holds long term, with turnover that is below average for an institutional investor.

Pure Heart's web site states:

We may find ourselves standing at the starting point of a new era in the Chinese capital market when looking forward 30 years from now on this historical chapter. Pure Heart China Growth Investment fund will accompany you to reap the rewards from these changes.

Mr. Zhao graduated from Xiamen Universty in 1994. He received a Bachelors Degree in Systems Engineering. He began his career in the securities business in 1996.

He was invited by Guotai Junan (HK) Securites Ltd in 2002 to oversee the fund management of Pure Heart China Growth Investment Fund. Mr. Zhao is currently the General Manager of Pure Heart Asset Management Ltd., Pure Heart China Growth Investment Fund. He is also acting in the post of Chief Investment Officer of "ICBC Custody Trust", "Ping An I Unit Trust", "Ping An II Unit Trust", and "SZITIC Investment Trust" .

The Value of Connections

It is rare that you get to see an exact dollar price on the value of a connection, although connections can, of course, be very valuable. That's why leading government bureaucrats are so in demand by law firms and lobbyists. The bureaucrats can provide access to, as well as info on the methods of operation of, specific government agencies.

But the value of connections extends well beyond the corridors of Washington DC. What better example can there be than the recent auctioning off for charity of the opportunity to have lunch with Warren Buffett?

The winning bid: $2.1 million. Clearly, someone sees great value in connecting with Buffett.

Zhao Danyang of the Hong Kong-based Pureheart China Growth Investment Fund won the auction, which ended Friday evening with a bid of $2,110,100.