Warren Buffett has sold completely out of IBM (at a loss)

In November 2011, when Berkshire Hathaway announced they invested in IBM, I wrote that it was a big mistake he was making.

Well, on May the 4th, CNBC reported that Warren Buffett says Berkshire Hathaway has sold completely out of IBM:

Buffett says Berkshire has ended a difficult chapter in its investment in IBM while ramping up its stake in Apple.

Well, this is something that took a very long while to happen, much longer than I thought, but it finally did.

Here's IBM's stock price since Nov 2011, and Berkshire has made a sizeable loss on that, or as Buffett puts it: Berkshire has ended a difficult chapter in its investment in IBM.

Intellectually Corrupt Warren Buffett Says Jamie Dimon Best Person to Run US Treasury

I have been discussing extensively the lack of integrity of Warren Buffett of the years; who actually never misses an opportunity to talk up his book, or advocate for crony capitalism or even socialist measures. The latest from him is that he is now advocating for Jamie Dimon to run the US treasury. 

(Bloomberg) Nov 27, 2012 — JPMorgan Chase Chief Executive Officer Jamie Dimon would be the best person to lead the U.S. Treasury Department in a financial crisis, billionaire investor Warren Buffett said.

“If we did run into problems in markets, I think he would actually be the best person you could have in the job,” Buffett said in response to a question about Dimon from Charlie Rose, according to the transcript of an interview that was scheduled to air yesterday on PBS. “World leaders would have confidence in him.”

President Barack Obama is seeking to replace Treasury Secretary Timothy F. Geithner, who had said he planned to step down. Dimon, 56, testified before Congress and shuffled top managers this year after the bank disclosed a loss, now of more than $6.2 billion, stemming from a wrong-way bet on credit derivatives. Buffett has described Dimon’s annual letter to shareholders as a must-read.

First of all, advocating for the government to intervene in the markets "if we run into problems". So he is advocating for more bailouts and for a "Government Put" to be put in place in addition to the "Bernanke Put".

Second point is: Isn't Dimon the man under which JPMorgan just announced $6.2 billion losses on speculative positions build in the CDS markets? Does he deserve to be promoted Secretary of the Treasury? Or be fired from the company? I guess, like many things in corrupt institutions, any thing that goes well is his deed, but anything that goes wrong is others deeds...

"Civilized people don’t buy gold" says Charlie Munger, Warren Buffet's Right Hand

Charlie Munger, along with Warren Buffett, are two of the most respected and yet despicable people of the investment community. For some reason, they've kept their aura of integrity while they have been using the governments and their connections to funnel money from the poor to the rich, and for stealing basically from people, by supporting all the inflationary policies and taxes of both the Fed and the US Gov. They are highly supportive of Greenspan, Bernanke, Bush, Obama when these people are implementing their destructive policies, but afterwards take the opportunity to criticize them once the failure is obvious and their pockets full of that money. Quite honestly, disgusting.

In a 35 minutes interview with CNBC, Charlie Munger yet again supported all those ideas, and took the opportunity to make yet another nasty comment, which will most probably not stain their white knight's aura (at 9"20):

“I think gold is a great thing to sew in to your garments if you’re a Jewish family in Vienna in 1939 but I think civilized people don’t buy gold."

The interview is generally interesting, to get to know Charlie Munger's state of mind and the way Berkshire operates. 

[Berkshire’s] Engine of Growth Set to Stall, Says Buffett Himself

Following up from my last post — Buffett's $2 Billion Investment in Energy On Track for Complete Wipe Out — Just the Beginning of His Fall? — it's ironic to see that Buffet himself is seeing the end coming, and so, just a couple of days after I mentioned it here.

Here's a quote from a Bloomberg report:

March 2 (Bloomberg) -- Warren Buffett, the former hedge fund manager who built Berkshire Hathaway Inc. into a $195 billion company by gaining leverage through insurance premiums, said this traditional source of new funds is drying up. 

Berkshire’s insurance units, which cover risks from fender benders to asbestos-related hospital bills, can no longer be relied on to provide new investment funds in the form of float, or accumulated premium, Buffett said in a Feb. 25 letter. Float, which rose to $70.6 billion as of Dec. 31 from $65.8 billion a year earlier and $39 million in 1970, is unlikely to “grow much -- if at all -- from its current level,” Buffett said. 

[...] “It’s an engine of growth that is running out of gas,” said Jeff Matthews, a Berkshire shareholder and author of “Secrets in Plain Sight: Business & Investing Secrets of Warren Buffett.” Berkshire “has now officially become a conglomerate. It no longer has the culture of an investment vehicle.” 

Berkshire’s success in attracting more insurance business each year than it loses has allowed Buffett to use policyholder funds to buy securities and keep them, in some instances, for decades. “Money we hold but don’t own,” as Buffett called float in 1997, has advanced in 27 of the last 28 years.  [...] 

“Float has always been their secret sauce,” said Shields, who has a “hold” rating on Berkshire stock. “This is a pretty dramatic change.” [...] 

Berkshire has declined 7.6 percent in New York in the last 12 months, compared with a gain of 5.2 percent in the Standard & Poor’s 500 Index. [...] 

"If insurance businesses are shrinking then it’s a reversal of the whole leverage model," said Alice Schroeder, author of “The Snowball, Warren Buffett and the Business of Life” and a Bloomberg View columnist.          

 Yes, it's true: deflation and delivering will hit everyone, and more so all the people who have been relying on leverage and credit expansion as their business model.

Buffett's $2 Billion Investment in Energy On Track for Complete Wipe Out — Just the Beginning of His Fall?

Perma-bull Warren Buffett, the most renown and respected investor ever — signs of the mania era, really — has been set to fail and his investments and speculative positions in the markets are set to sour. Hopefully, he won't lose face and will retire before the disaster, but it seems he's still holding onto that position he's enjoying so much.

As you might have guessed by now, I'm not a big fan of Warren, because while he manages to keep the appearances of a man full of honesty and integrity, he's quite actually the opposite, and it's very well illustrated in the numerous posts on my blog.

Anyway, here's the latest about his investments:

Feb. 27 (Bloomberg) -- Warren Buffett, who bought about $2 billion in bonds of power company Energy Future Holdings Corp., said the investment is at risk of losing all its value after natural gas prices fell. 

Buffett’s Berkshire Hathaway Inc. wrote down the debt by $390 million last year, following a $1 billion impairment in 2010, the billionaire said in his annual letter to shareholders posted Feb. 25 on the company’s website. The market value of the investment was $878 million at the end of December, he said. 

“If gas prices remain at present levels, we will likely face a further loss, perhaps in an amount that will virtually wipe out our current carrying value,” wrote Buffett, Berkshire’s chairman and chief executive officer. “Conversely, a substantial increase in gas prices might allow us to recoup some, or even all, of our writedown.” 

Buffett, 81, invested in the bonds in 2007 after Energy Future, then called TXU Corp., was bought by KKR & Co. and TPG Capital in the largest leveraged buyout. The private-equity firms wagered that gas prices would rise, pushing up the price for wholesale electricity. 

Instead, gas prices plummeted amid an expansion of drilling in the U.S., putting pressure on power providers that operate in unregulated markets where states don’t ensure utilities make a certain level of profit. 

The $1.87 billion of 10.25 percent bonds from Energy Future’s Texas Competitive unit due in November 2015 have tumbled to 29 cents on Feb. 24 from 62 cents on the dollar a year earlier, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

 Interestingly, the last two editions of the ElliottWave Financial Forecast have a piece on Warren Buffett as well. Here are some quotes.
First from the Jan edition:

Still, here at the very tail end of the Great Mania, Buffett’s bull-market aura appears as strong as ever. Interestingly, however, his stock, Berkshire Hathaway, is not doing nearly as well. In fact, since the middle of 1998, the front edge of the great stock market peak, Berkshire is up just 2.3% per year. Compared to many stocks and money managers, this performance isn’t bad. But over the same span, risk-free U.S. Treasury bills returned approximately 3.28% annually. 

Meanwhile, changes in Buffett’s investment approach hint that the next phase of the bear market will be extremely hard on his portfolio as well as his public image. One of the most important shifts is his subtle drift away from the bottom-up, value-oriented stock picking that produced his fortune. In recent years, Buffett has adopted more of a top-down, macro approach to investing. In November, a financial web site, MarketOracle.co.uk, highlighted the change with this comment: “He’s said repeatedly the United States won’t see a double-dip recession—and he’s putting huge money behind that forecast.” In the third quarter of 2011, Berkshire Hathaway invested $23.9 billion in stocks, the most for one quarter in at least 15 years. “He sees something and it’s big,” says an investment manager. “He’s broadly diversifying across numerous industries,” notes another. This change is out of character with the fundamental, company-specific analysis that made Buffett the icon he is today. We believe it also embodies one of his more insightful investment adages: “Wide diversification is required only when investors do not understand what they are doing.” 

Over the years, Buffett also assiduously advised against stock-market timing. As the Dow made its all- time high in 2007, however, he began establishing a multi-billion dollar exception to this rule when he sold put options on the S&P 500, FTSE 100, Euro Stoxx 50 and Nikkei 225 stock indexes. The European options pay off for Buffett only if these particular indexes are not lower than their 2007 levels near the times of the expiration dates over the next 7 to 15 years. It’s not a short-term bet, but it is a timing play that surely would have offended the sensibilities of his mentor Benjamin Graham, who emphasized the importance of individual company fundamentals and called market timing “ungrounded folly.” Of course, if our global market outlook pans out, Berkshire will be buying back these options at much higher prices than it sold them. 

Another position that carries Buffett away from his own investment philosophy is his recent decision to buy back Berkshire Hathaway stock. Previously, Buffett derided buybacks, saying that through them companies tend to overpay “departing shareholders at the expense of those who stay.” He made the comment in March 2000, which turned out to be pretty prescient, as it happened to be a high point of a then-record buyback frenzy and the end of the Grand Supercycle bull market).[...] 

In November, Buffett revealed that he had broken another of his golden rules by purchasing a big block of IBM shares over the course of the prior eight months. Previously, he never bought the shares of a technology stock for reasons that are described in The Tao of Warren Buffett:

Warren makes it a point to understand each and every business in which he invests. It’s perhaps the greatest key to his success. If he doesn’t understand something, he doesn’t invest in it. This tenet has famously kept him from investing in high-technology companies—he doesn’t understand what they do.

Apparently, at the age of 81, Buffett finally “gets” technology. 

Now Feb:

The potential for a big sell-off must be large, because the January 23 cover of Time magazine features all- out optimism by one of the most heeded of investment sages. The cover features a picture of the man himself, hand cupped to his eye, peering into the future. The full headline is “The Optimist—Why Warren Buffett is bullish on America.” According to the magazine cover indicator, this constitutes an important “sell” signal for the overall stock market. [...]

another aspect that indicates a very late juncture is that this public icon is altering his behavior and investment discipline in ways that align him with, rather than against, the crowd. The Time cover is an example, as Buffett cooperated and posed in various settings for the magazine. In earlier times, the Oracle of Omaha shunned the limelight. “Buffett keeps a low profile,” noted a 1985 New York magazine profile. 

As recently as 2006, he excommunicated an adopted granddaughter for appearing in a documentary in which she commented on the Buffett family and her famous grandfather. In recent times, Buffett lifted the veil of secrecy by granting frequent interviews, announcing recent investments on CNBC and even jumping into the political arena as the centerpiece in an effort to raise taxes on the wealthy. [...]

Buffett Buys Stake In IBM at Historical High

Buffett, for whom my lack of respect is growing bigger and bigger every day seems to be piling on the mistakes.

This week, the corrupt Oracle of Omaha announced that he's invested $10 billion in IBM, after refusing to invest in any tech stock for more than 60 years. And he does this at the worst possible time ever: IBM is trading at a historical high price — that's right, this is a value stock! — while the markets are also trading at multi-year high, and the sovereign countries around the world are on the verge of the biggest debt crisis ever.

My only hope is that he remains in charge just a couple of extra years until he meets the same fate as Greenspan and other lucky then ridiculed giants of the past.

Nov. 15 (Bloomberg) -- Warren Buffett, who bought a railroad in his biggest acquisition, turned to a century-old technology company in the third quarter to help guard his Berkshire Hathaway Inc. against economic slumps. 

Buffett spent more than $10 billion buying International Business Machines Corp. stock, his biggest investment in the period. The stake gives Berkshire 5.5 percent of a company that has moved from competition with Apple Inc. and Dell Inc. to focus on providing business clients with software and services. IBM sold its personal-computer business in 2005 and has beaten the Dow Jones Industrial Average each year since.

The best time ever to buy $10 billion worth of IBM shares, right?

Berkshire Invests in Bank of America — Does it change anything?

The big news today: Berkshire will invest $5 billion in preferred stocks that yield 6%.

(Bloomberg) Bank of America Corp. (BAC), the biggest U.S. lender, said Warren Buffett’s Berkshire Hathaway Inc. will invest $5 billion to bolster the company after losses tied to subprime mortgages drained capital. Bank of America led a rally of U.S. lenders in New York trading. The lender will sell cumulative perpetual preferred stock to Berkshire, the Charlotte, North Carolina-based bank said today in a statement. The preferred stock pays an annual dividend of 6 percent, and Omaha, Nebraska-based Berkshire gets warrants to buy 700 million shares at about $7.14 each.

My comments: I still believe that BofA — we are very confident, we don’t need to raise capital, but we just rose capital for the fun of paying a 6% guaranteed coupon — will go quickly to ZERO. Now that Buffett has cleaned off all the shorts, there is a nice potential for decline. I might try and enter a position if the stock stays where it is.

Moreover, during the past week, all the analysts have been very bullish on the stock, even the likes of Meredith Witney, who tends to be bearish, so it doesn't give the foundations for a real and durable bottoming process.

[Update: the stock already lost 12 of the 25% gains while I was writing this post]

S&P Has Spine — Buffett Confirms He Is A Greedy Pig — Fund Manager, CEOs, Government Employees Join Forces To Attack S&P And Protect the Hand That Feeds Them

Bill Gross seems to be the only fund manager with self-respect and integrity. I couldn't agree more with his statement:

Aug. 8 (Bloomberg) -- Bill Gross, manager of the world’s biggest bond mutual fund, said Standard & Poor’s showed “spine” by cutting the U.S. debt rating, contradicting Warren Buffett and Legg Mason Inc.’s Bill Miller, who said the rating company erred.

“I think S&P has demonstrated some spine; they finally got it right,” Gross said in a Bloomberg Television interview with Tom Keene yesterday. The U.S. has “enormous problems,” he said, referring to the country’s mounting debt.

S&P on Aug. 5 lowered the U.S. one level to AA+ while keeping the outlook at “negative” as it becomes less confident Congress will end Bush-era tax cuts or tackle entitlements. The U.S. merits a “quadruple A” rating, Buffett, 80, said in an interview with Betty Liu on Bloomberg Television. Legg Mason’s Miller said S&P was “precipitous, wrong and dangerous” in lowering the rating after last week’s stock market selloff.

Buffett keeps on calling the bull and asking for the government to channel money from the american's pockets to his hedge fund.

Aug. 7 (Bloomberg) -- Billionaire Warren Buffett said Standard & Poor’s erred when it lowered the U.S. credit rating and reiterated his view that the economy will avoid its second recession in three years.

The U.S., which was cut Aug. 5 to AA+ from AAA at S&P, merits a “quadruple A” rating, Buffett, 80, said yesterday in an interview with Betty Liu at Bloomberg Television. The downgrade followed the biggest weekly selloff in U.S. stocks in 32 months, with the S&P 500 slumping 7.2 percent to its lowest level since November.

“Financial markets create their own dynamics, but I don’t think we’re facing a double dip recession,” said Buffett, chairman and chief executive officer of Omaha, Nebraska-based Berkshire Hathaway Inc. “Clearly what stock markets do have is an effect on confidence, and this selloff can create a lack of confidence.”

The Treasury obviously barks. But listen to Coburn below, could he be more spot on?

Aug. 7 (Bloomberg) -- The U.S. Treasury Department said there is “no justifiable rationale” for Standard & Poor’s move to downgrade the nation’s credit rating as global finance ministry officials prepared responses to the historic announcement.
[...]
The Treasury Department issued a statement saying S&P had acknowledged an “error” in its calculations and that the rating company made a $2 trillion mistake.

[...] Senator Tom Coburn, an Oklahoma Republican and a member of the so-called Gang of Six that has been working since early this year on a bipartisan deficit-reduction plan, said the S&P downgrade was “probably long overdue.”

“For decades, political careerism has trumped statesmanship in Washington,” Coburn said in a statement yesterday. “Both parties have done what is safe, not what is right. The dysfunction in Washington is the belief that we can live beyond our means forever. We can’t.”

S&P Seen Surrendering to Tea Party at Expense of U.S. Taxpayer — See how much negativity there is in this report (see emphasis):

Aug. 8 (Bloomberg) -- Standard & Poor’s, the rating company that downgraded the debt of the United States to AA+ from AAA for the first time, now finds itself assailed by investors led by billionaire Warren Buffett for making a political decision that has more to do with Tea Party politics than the financial stability of the U.S.
[...]
The New York-based subsidiary of McGraw Hill Cos., whose inflated grades of mortgage-backed investments -- paid for by the banks that created the toxic debt -- were blamed by Congressional investigators for fueling the financial crisis, rattled investors around the world and provided fodder for President Barack Obama’s rivals in the 2012 elections. U.S. equity futures and global stock markets tumbled, oil sank and gold rallied to a record.

“Clearly the ratings downgrade was a ‘political decision’ in the sense that the politics explained the timing of this, because the numbers have been irrefutable for a decade,” said Robert Litan, vice president for research and policy at the Kauffman Foundation in Kansas City, Missouri. “It gives an enormous amount of ammunition to the Tea Party. They said the deal didn’t go far enough and they’ll say ‘see.’”
[...]
S&P’s action may hurt the U.S. economy over time by increasing the cost of mortgages, auto loans and other lending tied to the interest rates paid on Treasuries. JPMorgan Chase & Co. estimated that a downgrade would raise the nation’s borrowing costs by $100 billion a year. The U.S. spent $414 billion on interest in fiscal 2010, or 2.7 percent of gross domestic product, according to Treasury Department data.
[...]
BlackRock Inc., the world’s biggest money manager, and Buffett, the chairman of Omaha, Nebraska-based Berkshire Hathaway Inc., said the decision doesn’t reflect any inability of the U.S. to pay its debts.
[...]
John Bellows, the Treasury’s acting assistant secretary for economic policy, said in a blog post that S&P initially overestimated future deficits by $2 trillion over 10 years. “After Treasury pointed out this error -- a basic math error of significant consequence -- S&P still chose to proceed with their flawed judgment by simply changing their principal rationale for their credit-rating decision from an economic one to a political one,” he wrote.

S&P said in a statement that the revision lowered its forecast for the debt-to-gross domestic product ratio in 2015 by two percentage points and didn’t affect its ratings decision. S&P said in the Aug. 5 report that the ratio of debt to GDP would reach 77 percent in 2015 and 78 percent by 2021.
[...]
“The old fashioned ratings agencies where humans make the decision to downgrade are always wrong,” Christopher Whalen, managing director at Institutional Risk Analytics, said yesterday in a telephone interview.

S&P came under scrutiny for ratings of financial products linked to subprime mortgages after losses and writedowns by the world’s biggest financial institutions reached $2.1 trillion.

The Financial Crisis Inquiry Commission called S&P and Moody’s “key enablers of the financial meltdown” in its January report. In April, a Senate panel said that the rating companies engaged in a “race to the bottom” to assign top grades on mortgage-backed securities in order to win fees from banks.
[...]
“There is no reason to take Friday’s downgrade of America seriously,” Nobel Laureate Paul Krugman said in a New York Times column. “These are the last people whose judgment we should trust.”
[...]
“To downgrade you have to argue there’s an increased chance that we won’t pay our debts,” said Peter J. Solomon, founder of New York-based investment bank Peter J. Solomon Co. and a one-time counselor to the Treasury Secretary under President Jimmy Carter. “I don’t think that’s been proven, I think it’s been proven that we always will pay our debts.”

[...] Alice Rivlin, former President Bill Clinton’s budget director who served on a fiscal commission Obama set up last year, called the downgrade “entirely symbolic.”

S&has no inside information and has done no original research, so they aren’t telling anyone anything they didn’t know already,” Rivlin said in an e-mail. “It is not like downgrading a company or a complex security, where they might actually be contributing new information -- although their track record before the crisis doesn’t inspire confidence there either.”

Perma-Bull Carl Futia goes out of his way (usually ignoring market and political news) to join the herd and bark at S&P and being completely ignorant when it comes to economics knowledge, he makes quite a few silly and unwelcome personal attacks:

After Friday's close the credit raters at the S&P downgraded their ratings of US government debt securities from AAA to AA+.

I think the S&P rating folks are imbeciles and don't deserve to be taken seriously by adults. Why?

1. Their understanding of real estate economics led them to rate the vast majority of mortgage backed securities AAA back in 2005-07. This alone should be sufficient to destroy their credibility among thinking people.

2. Their downgrade of the US is based purely on predictions of what the politicians will or won't do. I find it hard to believe their political forecasts are better than their real estate forecasts.

3. As I have often pointed out it is impossible for the US to default on debt servicing and repayments. We borrow in our own currency which we can print at will.

4. RE 3. - If the world was worrying about US failure to repay why have treasury securities been rallying the past week as investors flee to quality?

Warren Buffett — The Ultimate Bull Market Phenomenon

I just came this blog post from M3 Financial Analysis (which I had never seen before). The blog seems to be an interesting one, and the post itself is awesome as it summarizes in a very good way many of my posts on Warren Buffet: the fact that he has been more lucky than skillful, benefiting from the longest bull market and the biggest credit bubble in history, losing his integrity in supporting anti-capitalistic and socialist ideas to push up his own book, and more recently, insider trading and other actions...

Here a few quotes:

Warren Buffett is not an expert at value. Value is non-rational and relative. Nobody is an expert at value since it does not exist. (just look at the 150 pe for the SP500 as an example...is that value now? is it value at 7? Either answer is equally inaccurate since they are both totally arbitrary.)

Warren Buffett is not an expert at derivatives trading. He sold billions of dollars of puts on the SP500, FTSE, Nikkei and Stoxx indexes right near the top of the market. There is a difference between being right and lucky. And though my view is that Buffet has more skill than just luck...he has primarily been the beneficiary of luck not skill.
[...]

Buffett continues to rationalize his holdings and trades. He continues to play out his own psychological patterns. And most important, he is now a victim of societies psychological patterns in that his decisions seemingly leave him no choice but to try to rationalize his actions and thesis rather than do something about them.
[...]
In my book, lucky is being on the right side of the credit-inflation story and playing the fiat game well on the way up. What is not lucky is trying to play that same game when the fiat system is dissolving before your eyes. But success via fiat is a high very much like, I guess, heroin or crack...great when you have some - but terrible when you don't. Buffett is addicted to the fiat system and his high is just starting to dissipate. Soon, he will be looking for replacement therapy. Methadone anyone?
[...]
So, what is Mr. Buffett's current investment technique?

He's become a promoter and a prop for the fiat money system. Masquerading as the last remaining real Bull-market success-story cheerleader, he's trying to convince everyone who will listen of marvelous and imaginative stories. For example, that his old ways (yes the lucky ones he used in the past) are the best choices, that the dollar is going to go in the tank, that holding cash for the last 8 years decreased your purchasing power. Much better to promote your own bubble manifestations like Well's Fargo, Bank of America, Conoco Phillips, GE and Moody's.

What I find truly sad and disingenuous is that he has resorted to promoting himself and his distortions via a structured public relations campaign. Specifically he has been used as a prop by Bernake and Paulson — obviously for his own benefit — is directly lying to people through his Op-ed and interview efforts.
What's more, he most likely is keenly aware of these facts. The only difference is that he has to lie in order to save his empire. If you were in his position you would most likely try to do something too rather than just watch the whole thing fall apart - even if it were crossing the line a bit. If Buffett tries to exit stage left he becomes a victim of his own bull-market demagogue status...everyone will try to exit with him. If he lies...he can simply say he was wrong but tried. (I think Barney Frank uses that technique a lot - but maybe its just most politicians)
[...]
What a down it will be for Berkshire and Buffett. A high climb becomes a long fall. People remember the fall much more than the climb when judging history - especially when they have no money left.
[...]
The thesis that the dollar will go into the tank is a credit-inflation manifestation. The dollar is already in the tank - its down over 96% since the Fed took over managing inflation (if you want to call it that)...i mean protecting the dollar. But isn't it ironic, people are sure the dollar will go in the tank when it only has a few percent to go to get to zero. I am sorry to inform Mr Buffett - the dollar is already in the tank and maybe it wants to go up now for a few years. 38% retracement anyone?

Buffett, Munger, Berkshire Crooks Face Tough Questions by SEC and Shareholders

If you thought of Warren Buffett and Charlie Munger as white knights of capitalism and above any dirty deeds, think again.

The current scandals at Berkshire Hathaway are opening wide to the eye of the public what I have been saying for the past 3 years: that Warren Buffett, Charlie Munger and his close business associates are a bunch of greedy crooks, as anybody who has not been sucked into the euphoria of the markets should have forecast.

During great bull markets, driven by excessive "confidence" and positive sentiment, nobody cares about corruption, crooks, fraud, insider trading etc. This is the reason why the market can over-extend by such a massive amount. Then, when sentiment sours and markets correct and crash, all of the sudden, all these stories that didn't matter — because people were drunk, believing that there wealth was going to the stratosphere and closed their eyes on all misbehaviours — all of the sudden start to matter a lot. This is why all the insider trading cases, corruption cases, etc. are revealed during bear markets and matter only during those times.

Here are a few reports, ordered chronologically. It's a very long post, but interesting nonetheless if you have the time and will to read through it — or at least the emphasized sections.

Berkshire’s Sokol Resigns After Investing in Takeover Target

March 30 (Bloomberg) -- David Sokol, once a candidate to succeed Warren Buffett as the head of Berkshire Hathaway Inc., resigned after helping to negotiate the acquisition of a company whose shares he had purchased.

Sokol, 54, bought about 96,000 Lubrizol Corp. shares before recommending the company as a takeover target, Buffett, Berkshire’s chairman and chief executive officer, said today in a statement. Buffett said he didn’t ask for the resignation and that Sokol’s stock purchases were legal.

“What Sokol did was, the only word that comes to mind, shabby, and I am shocked he did it,” Jeff Matthews, author of “Pilgrimage to Warren Buffett’s Omaha” and founder of hedge fund Ram Partners LP, said in an e-mail. “Buffett says it wasn’t illegal, but it is not how you do deals, and especially not how you do them at Berkshire.”

Lubrizol, the Wickliffe, Ohio-based maker of engine lubricants, agreed this month to be purchased by Berkshire for about $9 billion. Sokol bought 96,060 Lubrizol shares on Jan. 5, 6 and 7, less than two weeks before recommending the company as a Berkshire acquisition, Buffett said today. In their first discussion about Lubrizol, Sokol mentioned he was a shareholder, Buffett said in the statement.

“It was a passing remark and I did not ask him about the date of his purchase or the extent of his holdings,” Buffett said. Buffett learned about the size and dates of the purchases “shortly before I left for Asia on March 19,” he said.

Sokol’s stake as reported by Buffett would have been worth about $9.92 million on Jan. 7, based on the closing price on the New York Stock Exchange. The shares have risen about 30 percent to $134.01 since Buffett’s deal was announced, boosting the stake, if Sokol still owns it, to $12.9 million.
[...]
Buffett, 80, is preparing Omaha, Nebraska-based Berkshire for his eventual departure. The company said in February it has four candidates to succeed Buffett as CEO, without publicly identifying them. Investors including Buffett biographer Andrew Kilpatrick had said Sokol was the most likely successor.
[...]

Buffett Misses Chance to Show Moral Courage: Alice Schroeder

March 31 (Bloomberg) -- What were they thinking? How could Warren Buffett excuse David Sokol’s trading in Lubrizol Corp. stock while Sokol was pitching the company to Berkshire Hathaway Inc. as an acquisition candidate?

Buffett and Sokol both say that nothing “unlawful” was going on (Sokol even went so far as to tell CNBC he did nothing inappropriate). Their explanation is that, because a deal with Lubrizol hadn’t actually been struck and wasn’t likely when Sokol bought his shares, it was all right for Sokol to profit from his knowledge of a possible deal.

On Wall Street, we call this kind of trading front-running, and everybody knows that it is wrong. People get fired for doing it. Sokol said that he is leaving Berkshire to pursue other business interests, and the timing is linked to Berkshire’s April 30 annual shareholder meeting, which is attended by tens of thousands of people. That’s probably true, in a sense. Buffett must want this mess cleared up and out of the way before he has to take questions from shareholders.

Buffett gave out a few facts in his press release yesterday, but the Schedule 14A filed with the Securities and Exchange Commission by Lubrizol fills in the damning pieces. After deciding to pursue Lubrizol as an acquisition candidate for Berkshire in the fall of 2010, Sokol tried to buy 50,000 shares on Dec. 13, the day he presented Berkshire’s possible interest to Citigroup Inc. and asked it to set up a meeting with Lubrizol’s management. He was able to acquire only 2,300 shares, and sold them a week later.

On Jan. 5, the day before Lubrizol’s management held a special meeting to discuss a possible sale to Berkshire, Sokol began to buy stock again. The following day, Lubrizol hired Evercore Partners Inc. as its banker to respond to the potential interest of Berkshire. By Jan. 7, Sokol had purchased 96,400 out of a targeted 100,000 Lubrizol shares.

It strains credulity to claim these dates were coincidental and that Sokol had only a 5 percent belief (as he has stated) that Berkshire would buy Lubrizol. Sokol covered his bases by casually mentioning to Buffett that he owned stock when he pitched the acquisition in December. He gave no details and apparently kept quiet for almost three months, until after the Berkshire board had sealed the deal on March 13.

When Berkshire announced it was buying Lubrizol, the stock soared and Sokol pocketed a $3 million profit. It’s a large sum, but Sokol is a very rich man already, and it looks like he fell into the classic trap of the rich and powerful, who so often blow their reputation over trivia.

With hindsight, Lubrizol’s SEC filing may be misleading by omission -- inadvertently so. Nowhere is Sokol’s financial interest mentioned in the catalog of events leading up to the deal. The relevant section of the filing says, in short, that neither Berkshire nor any of its subsidiaries (other than its externally managed pension funds) directly or indirectly owned a material amount of Lubrizol stock within the past three years.
[...]
Not surprisingly, according to the Financial Times, the SEC is now beginning an investigation. Presumably, it will look into whether there are similar patterns of trading in advance of other acquisition pitches by Sokol to Berkshire, whether consummated or not. One specific transaction that has piqued the curiosity of onlookers for months is Sokol’s purchases of shares of Middleburg Financial Corp. since 2010. And even if the SEC concludes that Sokol did nothing illegal, the known facts suggest that what Sokol did was wrong.
[...]
It would be inexcusable for the chief executive officer of Berkshire Hathaway to front-run a potential acquisition this way. Why then, couldn’t the CEO of Berkshire admit it is inexcusable for one of his own senior managers to do so? Instead of condemning Sokol, Buffett gave him a pat on the back on the way out the door. Since when is it enough to merely uphold the letter of the law, especially at Berkshire? Whatever happened to Buffett’s famous saying, “Lose money and I will forgive you, but lose even a shred of reputation and I will be ruthless”?

It’s too bad that Buffett missed an opportunity to show moral courage, stand up for principle, reinforce to his employees what he expects from them, and, not least of all, to live up to his own public reputation.

Editor’s note: Alice Schroeder has been subpoenaed by Berkshire subsidiary NetJets seeking confidential information related to her news sources for other publications. The matter is being heard in Connecticut state court.

(Alice Schroeder, author of “The Snowball: Warren Buffett and the Business of Life” and a former managing director at Morgan Stanley, is a Bloomberg News columnist. The opinions expressed are her own.)

Munger Says He Told Buffett of Stake in BYD, Recused Himself

April 6 (Bloomberg) -- Berkshire Hathaway Inc. Vice Chairman Charles Munger said his family was invested in BYD Co. “for years” before his company took a stake in the Chinese automaker and that he disclosed the financial interest to his business partner Warren Buffett.

“I certainly suggested that Berkshire look at investing in something that the Mungers were already invested in, but we’d been in it for years,” he said yesterday in a phone interview.

The Munger investment was cited last week by former Berkshire manager David Sokol in a CNBC interview as precedent for his purchase of Lubrizol Corp. shares before recommending the company as a takeover target to Buffett. Sokol, whose resignation from Omaha, Nebraska-based Berkshire was announced by Buffett on March 30, said there was nothing unethical about purchasing about 96,000 Lubrizol shares in January.

“I don’t believe I did anything wrong,” Sokol said, according to a transcript on CNBC’s website. “Mr. Munger owned a significant piece of BYD before he mentioned it to me to go look at it.”

Munger, 87, said his family invested with money manager Li Lu in BYD through a partnership that has a stake of about 3 percent and that he urged Sokol, then the leader of Berkshire’s energy business, to scout the business.

“I had Dave look at it, because I knew I couldn’t talk Warren into buying into the damn thing by myself,” Munger said. “It’s a new technology-type investment. But David went over there, and he made the deal for Berkshire.” Buffett is Berkshire’s chairman and chief executive officer.

Berkshire invested about $230 million in BYD in 2008 and holds a stake of almost 10 percent in the company. The investment was valued at $1.18 billion at the end of 2010, Buffett said in the company’s annual report. BYD, based in Shenzhen, has said it aims to begin selling electric and hybrid cars in Europe by the end of next year.

Munger said his family holds a “little more” than half of the fund with the BYD investment, and that he didn’t participate in Berkshire’s discussions on its deal.

“I recused myself,” Munger said. “But there’s no question about it, that I caused Dave’s original interest.” He declined to comment further.
[...]
Munger’s account of the BYD investments doesn’t raise “any taint or question mark” for Berkshire, said John Coffee, a securities law professor at Columbia University.

“There’s always going to be some possibility that a director will have some interest in a company that your firm is looking at for a transaction and you disclose that and you recuse yourself,” Coffee said.
[...]

‘Do-Right’ Buffett Plants a Misplaced Kiss: Jonathan Weil

April 7 (Bloomberg) -- Long ago when I was a young reporter covering the Arkansas legislature for the local paper in Little Rock, there was a line I’d hear in the hallways periodically about the prevailing moral standard some lawmakers lived by when doing the people’s business, called “the do-right rule.”

It went like this: If I’m the one doing it, then it must be all right. This brings us to the subject of Warren Buffett, a longtime adherent to his own version of the do-right rule, which has no particular meaning other than that it is flexible and sounds folksy. The problem with this rule is it works well, until it doesn’t. And lately for Buffett, one of the greatest value creators ever, it hasn’t been working so hot.

Witness the harsh public reaction to the goodbye kiss Buffett planted last week on David Sokol, 54, the head of several Berkshire Hathaway Inc. subsidiaries who had been widely viewed as Buffett’s successor in waiting.

In his letter disclosing Sokol’s surprise resignation, Buffett praised Sokol’s “extraordinary” contributions. He told how Sokol had bought millions of dollars of Lubrizol Corp. stock for himself, shortly before he suggested (successfully) to Buffett that Berkshire buy the company. It was all legal, Buffett opined. Buffett also told us that Sokol had said his Lubrizol purchases “were not a factor in his decision to resign,” as if that were credible.

It wasn’t until the end of his letter that I began wondering if Buffett had lost his mind. “I have held back nothing in this statement,” he said. “Therefore, if questioned about this matter in the future, I will simply refer the questioner back to this release.”

So, it wasn’t just some questioners who would get the “Great Oz Has Spoken” treatment from Buffett. All questioners would, which is nuts. I mean, what’s he going to do if and when the Securities and Exchange Commission asks him about Sokol’s trades? Take the Fifth?

This should be a defining moment for Buffett, and for the public whose rock-star adulation he craves. Maybe now the world will realize we never should have held him up -- or bought his act -- as some moral paragon for business.

Sure, we can admire his talent for securities analysis, and his success at building an empire and making himself and lots of other investors rich. But let’s put to rest the exaltations about his plain talk and his eye for strong character. He’s a corporate chief executive officer, for goodness sake. These are the kinds of dodges we’ve come to expect from many CEOs.

Buffett, whose record of reputational hits is long and varied, is no exception.

He was on the audit committee of Coca-Cola Co.’s board when the SEC found the company had misled investors about its earnings during the 1990s. He stayed silent about Moody’s Corp. as it sold the public down the river with countless AAA ratings on garbage subprime mortgage bonds while Berkshire was its largest shareholder.

Four former executives of Berkshire’s Gen Re unit were sentenced to prison for helping American International Group Inc. commit accounting fraud a decade ago. At least in that instance, after Gen Re paid $92 million last year to settle investor claims and end government investigations, Buffett publicly acknowledged that the company had done something wrong.

And how much does Berkshire’s board really care about its trusted insiders’ trading anyway? The company kept Deloitte & Touche as its outside auditor after learning in 2008 that Deloitte’s vice chairman had been trading in and out of Berkshire’s stock while he was the advisory partner on Berkshire’s audit. That caused Deloitte and Berkshire to violate the SEC’s auditor-independence rules, the agency said last year.

Rather than change firms, though, Berkshire concluded Deloitte was independent anyway. The SEC went along with it, which ultimately is what mattered, not some higher Berkshire virtue of keeping up pristine appearances. (The former Deloitte partner last year paid about $1 million to settle fraud allegations by the SEC.)

Sometimes Berkshire’s whoppers are more subtle. The company’s latest proxy lists Microsoft Corp. Chairman Bill Gates as an “independent” director, even though Buffett has pledged most of his $47 billion fortune to the Bill & Melinda Gates Foundation. That may be OK under the SEC’s definition of independent, just not under a common-sense standard.

Another supposedly independent director is Walter Scott, who owns 9.4 percent of the voting shares in Berkshire subsidiary MidAmerican Energy Holdings, from which Sokol is resigning as chairman. Berkshire’s proxy assures us these matters were duly considered.

Berkshire steers millions of dollars of fees each year to Vice Chairman Charlie Munger’s old law firm, Munger, Tolles & Olson, where Berkshire director Ronald Olson is a partner. Other directors include Buffett’s son, Howard. At most public companies such dealings would be held up as examples of weak governance. Because this is Buffett, Berkshire usually has gotten a pass.
[...]
(Jonathan Weil is a Bloomberg News columnist. The opinions expressed are his own.)

Sokol Misled Buffett, Violated Trading Rules, Board Audit Finds

April 28 (Bloomberg) -- David Sokol violated Berkshire Hathaway Inc.’s insider-trading rules and misled the company about his personal stake in Lubrizol Corp., which he recommended as a takeover target to Chairman Warren Buffett, the firm said.

An 18-page report released yesterday by Berkshire’s audit committee portrayed Buffett as a victim of deception and said the company should weigh suing Sokol, 54, to recover his trading profits. The U.S. Securities and Exchange Commission is probing whether Sokol bought Lubrizol shares on inside information that Buffett was considering a buyout, according to a person who declined to be identified because the investigation is secret.

“They’re throwing Sokol under the bus,” said Stephen Bainbridge, a professor at the UCLA School of Law who has written and taught about corporate governance. Sokol was previously considered a candidate to replace Buffett as Berkshire’s chief executive officer.

Buffett, 80, is facing questions about his oversight of managers and criticism for not condemning the stock trading that preceded Sokol’s resignation from Omaha, Nebraska-based Berkshire. Buffett had said March 30 in announcing Sokol’s departure that he didn’t believe the trades were unlawful.

Sokol “would not, and did not, trade improperly, nor did he violate any fair reading of the Berkshire Hathaway policies,” according to a statement from William Levine, a lawyer for Sokol at Dickstein Shapiro LLP in Washington.
[...]
Buffett “had a duty to assemble the kind of facts and opinions that the audit committee did,” said Janet Tavakoli, president of Tavakoli Structured Finance Inc. “But Buffett didn’t do that.” Buffett didn’t immediately return a message left with an assistant for comment.

Sokol’s purchase of about $10 million in Lubrizol stock while representing Berkshire in a deal to buy the lubricant maker violated company policies on insider trading, and he failed to meet his disclosure obligations under state law in Delaware, where Berkshire is incorporated, the committee found.

The report “increases the prospect that he breached a fiduciary duty to Berkshire, which is what the SEC would need to prove to bring a case against him,” said John Coffee, securities law professor at Columbia University. “This is a significant shift in tone by Berkshire, probably because they’re embarrassed by having been slow to recognize the problem.”

Buffett said March 30 that he’d held back nothing from his comments that day and would refer future inquiries to his written statement. Yesterday, Berkshire said the company would post a transcript “as soon as possible” after Buffett’s April 30 meeting of questions and answers about Sokol and Lubrizol.

Buffett will face about five hours of questions from shareholders and journalists at the meeting, which draws tens of thousands of people to Omaha each year and gives the billionaire a forum to discuss his company, corporate governance and the economy. The report was a “pre-emptive action” ahead of the meeting, said Michael Yoshikami, chief investment strategist at Berkshire shareholder YCMNet Advisors.
[...]
Last year, Murphy was asked in a Bloomberg Television interview about candidates to succeed Buffett, and called Sokol a “first-class guy.”
[...]
Sokol joined Berkshire in 2000 when he sold MidAmerican Energy Holdings Co., which he led, to the company. Buffett had sent Sokol to China to scout an investment in carmaker BYD Co. and tasked the executive with the turnaround of NetJets Inc., Berkshire’s luxury-flight unit. Buffett biographer Andrew Kilpatrick had said Sokol was the most likely candidate to replace the billionaire as CEO.
[...]

Sokol, Once Buffett’s Heir Apparent, Is Rebuked by Berkshire

April 28 (Bloomberg) --
[...]Putting his money behind personal convictions of a different sort has now landed Sokol in deep trouble. Until March 30, he was widely seen as heir apparent to 80-year-old Warren Buffett, Berkshire’s chairman and chief executive officer and the prophet of heartland common sense. That day, Buffett made headlines by announcing that Sokol, 54, would resign from Berkshire.

On Wednesday, April 27, Berkshire’s audit committee again electrified the financial world. In a scathing 18-page report, it accused Sokol of violating company standards by misleading Berkshire about his personal stake in Lubrizol Corp., a chemical manufacturer he recommended to Buffett as a takeover target.

The committee stopped short of concluding that Sokol committed insider trading under federal law when he bought Lubrizol shares worth $10 million in January and then pitched the company to Buffett. But the company signaled that the former corporate star is now on his own, and Berkshire will cooperate “with any government investigations relating to this matter.” The Securities and Exchange Commission is investigating, although a spokeswoman declined to comment.
[...]
The Berkshire committee’s report provided a devastating version of the “what,” suggesting that Sokol “intended to deceive” Buffett about several key aspects of the Lubrizol episode.

The “why” remains more of a mystery: Why was Sokol, already a rich man with a vacation retreat near Jackson Hole, Wyoming, and a yacht to go with a third home in Fort Lauderdale, dabbling in the stock of a company he suggested that his boss acquire?
[...]
“It just doesn’t smell right,” says Andrew Kilpatrick, a retired stockbroker and author of “Of Permanent Value: The Story of Warren Buffett.”

A Berkshire shareholder has sued Buffett and Sokol in Delaware Chancery Court, alleging that they put the company at risk of an SEC enforcement action. The audit panel said Berkshire is considering suing Sokol “to recover any damage the company has sustained, or his trading profits, or both.”
[...]
Over the years, Sokol has developed a high regard for his own integrity, much as Buffett has. Like the older man, Sokol has become a font of bromides about capitalism and the good life. His stumble illustrates an occasion when, for all his strengths, he apparently came to believe that if he did something, then, by definition, it was right.
[...]
Last year, a state court judge in Omaha went out of his way to mention Sokol by name in a ruling that concluded that MidAmerican had acted “inequitably, unfairly, and dishonestly” in its dealings with shareholders of an irrigation project in the Philippines.

The dispute stemmed from a complicated deal in which Sokol’s company invested in the water project on the condition that if the project’s “internal rate of return” fell below a certain level, the minority shareholders would lose their entire stake.

Judge Gary B. Randall of Douglas County, Nebraska, ruled last April that MidAmerican’s decision to change the method of calculating the internal rate of return, which Sokol directly oversaw, was intended to harm the other shareholders. Randall awarded the victims $32 million in damages and gave them stock in the project that could yield substantial profits.

“The judge accurately portrayed Sokol’s conduct in this particular case as deliberately wrongful and betraying a partner,” says James W. Kennedy, the New York lawyer who represented the minority shareholders. After MidAmerican appealed, the case settled out of court on confidential terms, Kennedy says. MidAmerican didn’t respond to requests for comment.
[...]
Some NetJets employees, and especially ex-employees Sokol laid off, came to despise him. The personal website of Bloomberg News columnist Alice Schroeder, author of “The Snowball: Warren Buffett and the Business of Life,” became a venue for vituperation from current and former workers alleging that NetJets had been taxiing toward a recovery before Sokol arrived and that he harmed the company by shrinking it.

Enraged, Sokol fired back in an unusual e-mail to NetJets workers last August (which Schroeder obtained and published). He decried “a campaign designed to decrease the number of owners in the NetJets program, poison our relationships with our business partners, and incite our team members into providing a reduced level of service.”

His detractors said the e-mail illustrated part of the problem. “David Sokol can tolerate no disagreement of any kind regarding his decisions,” one anonymous commenter posted. “The mere fact of suggesting a different course of action is in and of itself an act of ‘sabotage’ to him.”
[...]
Now the question inevitably arises: Has Sokol engaged in a similar pattern of trading before other acquisition pitches to Berkshire? The SEC can pull records to check.
[...]“Look, everyone would think it’s unfair if Warren Buffett personally bought stock ahead of Berkshire acquisitions,” says Kilpatrick, the Buffett biographer, who is also a Berkshire shareholder. “It seems unfair for one of his top managers to do the same thing, whether or not it constitutes a prosecutable offense.”
[...]

Buffett Disciples Want ‘Oracle’ to Come Clean: Alice Schroeder

April 28 (Bloomberg) --
[...]For Buffett, sometimes dubbed the Oracle for his investing acumen, the meeting is a double-edged sword. The event at which he and his vice chairman, Charles T. Munger, spend almost six hours answering questions puts considerable pressure on him to be more forthcoming. On the other hand, Buffett will be speaking with a home-field advantage to a receptive audience that wants to think well of him.
[...]
The company lays out a story in which Sokol misled Buffett and Berkshire’s chief financial officer, Marc Hamburg. These revelations are damning, and the audit committee has concluded in harsh terms that Sokol violated Berkshire’s code of conduct, its insider-trading policy and failed his duties as a manager. But according to the report, the essential elements were known by the Berkshire board before March 30. This is when Buffett praised Sokol in a press statement and declared Sokol’s actions kosher because they were “not unlawful.”

According to a statement by Sokol’s attorney, Barry Levine, Buffett “was told twice, not once,” about Sokol’s ownership of Lubrizol shares before Buffett began takeover talks with the company.
[...]
The problem isn’t the about-face. It is the missing explanation for why Berkshire went so easy on Sokol in the first place.
[...]Governance, rightfully, will be high on the audience’s mind during the meeting, because Sokol is only a symptom of an underlying cause. The world acknowledges that a $200 billion company that employs about 260,000 people can’t be run by a single man. Buffett should step up on these issues now, before a public outcry puts him in conflict with his own board.
[...]

The Sokol incident has boomeranged to become a referendum on Buffett’s judgment of people and management style, Berkshire’s corporate governance, institutional infrastructure, risk-management and internal controls, and the succession process for a new CEO. It has also raised questions about the board’s committee structure, compensation and responsibilities.
[...]

Buffett to Face Questions on Praising Sokol Before Audit Report

April 29 (Bloomberg) -- Warren Buffett has asked for tough questions at the annual meetings of his Berkshire Hathaway Inc. He may get his wish after praising the outgoing executive who was later faulted by a board committee for misleading the company about stock trades.

Buffett uses his meeting and annual Omaha, Nebraska, press conference to promote Berkshire’s growth, pitch the company as an acquirer to potential takeover targets and tout his emphasis on ethics. The 80-year-old chief executive officer started having journalists screen shareholder inquiries in 2009 and encouraged them to pick the most challenging ones to replace inquires from prior years about baseball and religion.
[...]
“Buffett is going to get questions about his own behavior” at tomorrow’s meeting said Lyman Johnson, professor of corporate law at Washington and Lee University School of Law. “I do think that Buffett erred in his initial announcement.”

Buffett oversees the heads of Berkshire’s more than 70 subsidiaries with the help of Vice Chairman Charles Munger, 87, and a staff of about 20 at the company’s headquarters. Berkshire employs more than 250,000 people across industries spanning insurance, energy and consumer goods, and Buffett entrusts operational authority to the CEOs of the individual units.
[...]
“The whole notion of Berkshire Hathaway operating on a higher plane was based upon the idea they didn’t just do what was legal, they did what was ethical,” said Cornelius Hurley, a professor at Boston University School of Law and former assistant general counsel at the Federal Reserve Board of Governors. “When one of your senior officers gets caught with his hand in the jar and you say, ‘Oh it’s legal,’ you’ve kind of blown away that principle of higher standards.”
[...]
Shareholders at the 2007 meeting called on Buffett to divest a $3.3 billion stake in PetroChina Co. because its parent company held oil reserves in pipelines in Sudan where the government was accused of supporting genocide. Buffett said at the meeting he had no disagreement with PetroChina’s actions. He sold the stake later that year.
[...]
More than 30,000 people travel from around the world to Omaha for the annual meeting at the Qwest Center, where Buffett and Munger take questions for about five hours. Buffett’s annual press conference is scheduled for May 1.

Market Sentiment: Perma-Bull Warren Buffett says Japan's a Buying Opportunity

When a 7-10% drop in equity markets create so many "lifetime opportunities buying" and everybody gets on the boat to tell you to buy and not miss this opportunity, including the likes of Marc Faber, I believe it deserves to step aside and think.

What's not clear to me, it seems like Buffett missed a few market-history lessons as he still believes that markets always go up. Moreover, it's not clear or not whether Buffett owns Japanese equities or not.

March 21 (Bloomberg) -- Billionaire investor Warren Buffett said Japan’s record earthquake is a buying opportunity and he won’t sell his shares in the country as its future hasn’t been changed because of the temblor.
[...]
“If I owned Japanese stocks, I would certainly not be selling them because of the events of the past 10 days or so,” said Buffett, speaking to reporters in the South Korean city of Daegu, where he arrived yesterday to attend a ceremony for a new factory being built by TaeguTec Ltd. “Something out of the blue like this, an extraordinary event, really creates a buying opportunity.”
[...]
“It’ll take some time to rebuild, but it will not change the future of, the economic future of Japan,” said Buffett, Berkshire’s chairman and chief executive officer.

South Korea is a “hunting ground” for acquisitions, said Buffett, who prefers larger companies. Berkshire committed more than $35 billion to takeovers in the last two years.

“We’re ready to invest, and basically the bigger the better,” said the 80-year-old billionaire investor. “Large companies appeal to me and Korea has a number of large companies obviously, so it’s a hunting ground.”

Buffett reiterated that he is open to buying non-U.S. companies, while also saying U.S. businesses remain more likely his targets. Berkshire invested in TaeguTec through Iscar, the Tefen, Israel-based toolmaking unit.

“We do pile up cash, month by month, and we’re looking for large businesses to buy,” Buffett said. The U.S. is “the most familiar to me, so it’s most likely where we would do something.”

Here's another Bloomberg report about fund managers who are still very bullish:

March 15 (Bloomberg) The biggest decline in Japanese stocks in two years pushed valuations below levels in November, when a 19 percent rally began, luring investors who say equities will prove bargains as the country rebuilds from its largest earthquake on record.

AMP Capital Investors Ltd., which oversees about $98 billion in Sydney, raised its Japan rating to “overweight” from “neutral” yesterday after the Topix Index’s 7.5 percent tumble made its price equal to its net asset value, said strategist Nader Naeimi. Polar Capital Holdings Plc’s Japan Fund, which beat more than 85 percent of peers since 2006, bought steel and construction companies, manager James Salter said.
[...]
“If there are no further aftershocks, I believe that in six months, you’ll turn around and find that this was a great opportunity to buy,” said Salter, head of Japan for Polar Capital, which manages $4 billion in London. “We’ve got stocks in our portfolio that are down 20 percent. Some of the reactions, I think, have been completely crazy.”

Previous related posts:

• 2011-03-18 - Marc Faber Goes Uber Bullish on Japan and Calls "Lifetime Buying Opportunity" — I respectfully disagree
• 2011-03-17 - Market Sentiment: Nobody Believes a Meaningful Decline is Likely
• 2011-03-16 - Market Sentiment: Exuberance is the Name of the Game, Analysts see in the Current S&P Decline "a very bullish opportunity”

Buffett Says Goldman Deal Was no Bet: the Government had to take their responsibilities and bail them out by socializing the losses

I have already posted many times during the past 3 years about the complete lack of integrity and ethics that Warren Buffett has been showing since the beginning of the financial crisis.

The "Oracle of Omaha", Warren Buffett, known for the stellar performance of his Berkshire Hathaway stock price, has already admitted many times officially: when he makes money, it's for himself, and it's thanks to his talent, but when he's losing money, he expects the government and the government and the people to come to the rescue and bear the burden of the losses, without ever seeing any of the profits. So the talent might be in some other area than "investment management" and might be more located in the "friend making in government entities".

I'm never surprised by corruption at the state level as any Government is always the breading ground for corruption and wealth transfer from the people to the well-connected few. But I am revulsed that Warren Buffett is still enjoying the image of a white knight / angel / savior or someone whose opinion should be sought after in matters of politics or public policies.

Feb. 10 (Bloomberg) — Billionaire Warren Buffett said his $5 billion investment in Goldman Sachs Group Inc. at the depths of the financial crisis was a wager that Federal Reserve Chairman Ben S. Bernanke and then-Treasury Department Secretary Henry Paulson would take on debt to prop up the economy.

“It was a bet essentially on the fact that the government would not really shirk its responsibility at a time like that to leverage up at a time when the rest of the world was trying to deleverage,” Buffett said in an interview released today by the Financial Crisis Inquiry Commission.

Buffett’s Berkshire Hathaway Inc. bought preferred stock in New York-based Goldman Sachs in 2008 after the collapse of rival securities firm Lehman Brothers Holdings Inc. Paulson had left the chairmanship of Goldman Sachs in 2006 to join the administration of President George W. Bush. Bernanke had been an economist at Princeton University.

“I made the fundamental decision that we had the right people, in Bernanke and Paulson, in there with a president that would back them,” Buffett said.

Berkshire gets a 10 percent annual dividend on the investment and received warrants to buy $5 billion in common stock with a strike price of $115 per share. Goldman Sachs traded for more than $165 a share today on the New York Stock Exchange, compared with $84.39 at the end of 2008.

Buffett had said in 2008, when Omaha, Nebraska-based Berkshire announced the investment, that he was betting on an “exceptional institution.”
[...]

Warren Buffett writes a thank you for the bail-out letter to the US Gov

Those who follow this blog long enough know already that although I used to admire Warren Buffett, his behaviour since the financial crisis began reversed that admiration and I see him now just as more of the buy-products of the crony-capitalism of the US. His lack of integrity has been the subject of several posts already and his latest deed is just contributing to the whole he dug for himself.

Here's the op-ed he wrote in the NYTimes today:

Pretty Good for Government Work
By WARREN E. BUFFETT
Omaha
DEAR Uncle Sam,
My mother told me to send thank-you notes promptly. I’ve been remiss.
Let me remind you why I’m writing. Just over two years ago, in September 2008, our country faced an economic meltdown. Fannie Mae and Freddie Mac, the pillars that supported our mortgage system, had been forced into conservatorship. Several of our largest commercial banks were teetering. One of Wall Street’s giant investment banks had gone bankrupt, and the remaining three were poised to follow. A.I.G., the world’s most famous insurer, was at death’s door.
Many of our largest industrial companies, dependent on commercial paper financing that had disappeared, were weeks away from exhausting their cash resources. Indeed, all of corporate America’s dominoes were lined up, ready to topple at lightning speed. My own company, Berkshire Hathaway, might have been the last to fall, but that distinction provided little solace.
Nor was it just business that was in peril: 300 million Americans were in the domino line as well. Just days before, the jobs, income, 401(k)’s and money-market funds of these citizens had seemed secure. Then, virtually overnight, everything began to turn into pumpkins and mice. There was no hiding place. A destructive economic force unlike any seen for generations had been unleashed.
Only one counterforce was available, and that was you, Uncle Sam. Yes, you are often clumsy, even inept. But when businesses and people worldwide race to get liquid, you are the only party with the resources to take the other side of the transaction. And when our citizens are losing trust by the hour in institutions they once revered, only you can restore calm.
When the crisis struck, I felt you would understand the role you had to play. But you’ve never been known for speed, and in a meltdown minutes matter. I worried whether the barrage of shattering surprises would disorient you. You would have to improvise solutions on the run, stretch legal boundaries and avoid slowdowns, like Congressional hearings and studies. You would also need to get turf-conscious departments to work together in mounting your counterattack. The challenge was huge, and many people thought you were not up to it.
Well, Uncle Sam, you delivered. People will second-guess your specific decisions; you can always count on that. But just as there is a fog of war, there is a fog of panic — and, overall, your actions were remarkably effective.
I don’t know precisely how you orchestrated these. But I did have a pretty good seat as events unfolded, and I would like to commend a few of your troops. In the darkest of days, Ben Bernanke, Hank Paulson, Tim Geithner and Sheila Bair grasped the gravity of the situation and acted with courage and dispatch. And though I never voted for George W. Bush, I give him great credit for leading, even as Congress postured and squabbled.
You have been criticized, Uncle Sam, for some of the earlier decisions that got us in this mess — most prominently, for not battling the rot building up in the housing market. But then few of your critics saw matters clearly either. In truth, almost all of the country became possessed by the idea that home prices could never fall significantly.
That was a mass delusion, reinforced by rapidly rising prices that discredited the few skeptics who warned of trouble. Delusions, whether about tulips or Internet stocks, produce bubbles. And when bubbles pop, they can generate waves of trouble that hit shores far from their origin. This bubble was a doozy and its pop was felt around the world.
So, again, Uncle Sam, thanks to you and your aides. Often you are wasteful, and sometimes you are bullying. On occasion, you are downright maddening. But in this extraordinary emergency, you came through — and the world would look far different now if you had not.
Your grateful nephew,
Warren
Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.

Warren Buffett is not even ashamed of himself. His "diversified holding company" is nothing but a banking and insurance holding behaving more like a hedge fund than anything else. And did he forget to mention that he sold for billions of dollars worth of put options on S&P 500...

And NO Mr Buffett, the government didn't "fix" anything. They merely did the biggest wealth transfer in the history of mankind, from US tax-payers and international USD bearer to the banking industry of the US, and in doing so, they just kicked the insolvency can down the road.

Buying Berkshire Hathaway was my biggest mistake, says Warren Buffett

This is an interesting interview conducted by CNBC where Buffett declares that the biggest mistake of his investment career was to buy Berkshire Hathaway. The video clip below lasts 4 minutes and is definitely a piece of history.

That said, I would not agree with Buffett on the compounding effect and the claim that it cost him $200 billion. Moreover, the lesson he learnt from that might have allowed him to avoid far bigger ones in the future, and to become rational in his investment process, so it might actually be the exact opposite. But hey, it's easier for him to claim he could be worth $200 billion more than to think about the positive outcomes of such a mistake, right?

He calls his 1964 decision to buy the textile company a $200 billion dollar blunder, sparked by a spiteful urge to retaliate against the CEO who tried to "chisel" Buffett out of an eighth of a point on a tender deal.

Feed subscribers: you might have to open the blog post in your navigator to see the embedded video.

Charlie Munger confirms that Buffett and himself have no integrity whatsoever

In case you missed all the posts about Warren Buffett and his lack of integrity, it's good that his associate in crime, Charlie Munger also opens his mouth from time to time, and spreads the sad reality of these arrogant cronies:

Charles Munger, the billionaire vice chairman of Berkshire Hathaway Inc., defended the U.S. financial-company rescues of 2008 and told students that people in economic distress should “suck it in and cope.”

“You should thank God” for bank bailouts, Munger said in a discussion at the University of Michigan on Sept. 14, according to a video posted on the Internet. “Now, if you talk about bailouts for everybody else, there comes a place where if you just start bailing out all the individuals instead of telling them to adapt, the culture dies.”
[...]
“Hit the economy with enough misery and enough disruption, destroy the currency, and God knows what happens,” Munger said. “So I think when you have troubles like that you shouldn’t be bitching about a little bailout. You should have been thinking it should have been bigger.”

Germany was unable to stabilize its financial system in the 1920s, and, Munger said, “We ended up with Adolf Hitler.”
[...]
“Charlie Munger is misrepresenting history, and that’s why the public is angry at Wall Street,” said Joshua Rosner, an analyst at research firm Graham Fisher & Co. “We could have wiped out the equity holders before we wiped out the taxpayer.”

Not only equity holders, but also bond holders. And then letting banks failed wouldn't have destroyed the currency, quite the opposite! The banks and the Fed are destroying the currency, NOTHING ELSE.

I don't think there's anything else to add.

Mish's take on Warren Buffett

I have mentioned several times how Warren Buffett is just talking his portfolio up and how his greed and lack of integrity is interfering with his ability to remain objective, if not to tell the truth.

Well, I am very glad to see that Mish is thinking the same and is very vocal about it. In a post he wrote today, titled Buffett Defends the Indefensible: Goldman Sachs and Rating Agencies; Goldman's Sweetheart Deal With Buffett Revisited, he said:

In the midst of the stock market crash, Warren Buffett got a great deal on Goldman Sachs preferreds. Those preferreds are making him $15 a second.

I do not fault Buffett one second for taking that deal. It seemed like a great deal at the time, and it was. The problem is, it's important to distinguish between a deal good for his shareholders, and the integrity of Goldman Sachs.

Sadly, Warren Buffett is now caught in no man's land, unable or unwilling to see the difference.[...]

"We love the investment," Buffett said. "Our preferreds are paying $15 a second, so as we sit here, 'Tick, tick, tick, tick,' that's $15 every second," he said.
Buffett added that the SEC lawsuit was not a serious enough event to raise reputational issues that would call into question the Berkshire investment.

That last sentence is complete nonsense at best. At worst it is a blatant lie.
[...]
Buffett voluntarily put himself in the position of having his integrity questioned. He could have said "we got a great deal" and left it at that. It would have been a true statement.

However, it's hard not to defend someone who give you a sweetheart deal that makes $15 a second.
[...]
I agree with Buffett that Moody's, Fitch, and the S&P have an "incredibly wonderful businesses" in the same sense the Mafia has an "incredibly wonderful businesses" with its numbers racket.

At least with the Mafia, you know what the odds are, and profits are paid in cash.

With the rating agencies we saw blatant incompetence and fraud every step of the way. What makes that a 'Phenomenal' Business Model is explicit government sanction.
[...]
Once again, I do not fault Buffet for spotting an "incredibly wonderful businesses" whose "pricing power is significant." I can and do fault Buffett for his defense of pervasive rating agency fraud, shrugging it off as a mistake.

Here are a sample of my posts about Warren Buffet:

• 2010-05-02 Buffett says Ratings Companies Still Have 'Phenomenal' Business Model
• 2008-10-24 Losing My Integrity - Warren Buffet's Next Book?

Clck here for all my posts about Warren Buffet.

Buffett says Ratings Companies Still Have 'Phenomenal' Business Model

A friend of mine sent me two interesting links from the WSJ. The first one was dealt with in my previous post: Government backed 96.5% of all home loans in Q1. The second one is about Buffett bragging about the phenomenal business of the rating agencies. I'm not a subscriber to the WSJ, but googling around lead me to this other link on Nasdaq, which seems to republish the same news article.

OMAHA, Neb. -(Dow Jones)- In the past year, Berkshire Hathaway has been rapidly selling shares of Moody's Corp., the ratings outfit.

But Bershire still has a large stake in Moody's, which many say played a key role in the financial crisis by handing out high ratings to mortgage bonds that later collapsed.

Berkshire CEO Warren Buffett mounted a defense of the firms. He said he believes the ratings outfits, including Standard & Poor's, have "incredibly wonderful businesses" and that their "pricing power is significant."

The rating agencies have proven that not only governments creating a monopoly cannot help in bringing in useful ratings but they keep their prices artificially high by preventing competition in the market place ("pricing power is significant" — why do you think so??) and fair ratings cannot happen when the company needing a rating on his own debt or products is paying to get them.

The subprime and CDO cataclysmic collapses just prove the previous points.

So, let's put the record straight, consequently, Buffett is not a free market advocate, he's driven by greed and profits, nothing else.

• Buffett has shown several times in the past that he doesn't care about integrity
• Buffett only talks his book, nothing else.

David Einhorn has been showing far more integrity and honesty and makes a clear case about why their business model is broken, and why he is shorting the shares as well. Here are some quotes from a MarketWatch report (see MarketWatch for full text):

Einhorn said that many institutions with AAA ratings, including the U.S. government, turned that supposed benefit into a disaster by borrowing recklessly, according to a hedge-fund investor.

Most of the companies that have run into trouble during the financial crisis were or still are AAA rated, including American International Group (AIG), Fannie Mae, Freddie Mac, MBIA, Ambac and General Electric, Einhorn noted.

The leading purveyor of AAA ratings is Moody's, so Greenlight Capital is short that company's shares, the investor quoted Einhorn as saying.

Einhorn argued that Moody's is part of a government-created oligopoly that should be abolished. The smartest investors, including Warren Buffett, ignore credit ratings when making investment decisions, he said.

Warren Buffett Rocks

Those of you who have been following me for some time might have been chocked by reading the title of this post, and you would be right. Although I have deep respect for Warren Buffett as an investment legend and genius, I am annoyed by his inability to speak the truth when it comes to the supporting Obama, Bernanke, and the talking his book only when it comes to such matters.

So why does Warren Buffett rock? Well, simply because he actually does rock! Still not getting it, right? Well here's a quote from the Time Magazine report followed by the actual video clip on YouTube:

Who would have thought that under the hard business exterior of mega-investor Warren Buffett lies the soul of a wannabe rocker? A surreal video making its way around the Net shows Buffett doing his best imitation of Guns N' Roses rocker Axl Rose, complete with waist-length hair, a purple bandanna, a black leather jacket and Axl's signature red plaid kilt from the '80s — all as part of an eye-catching video for Geico, the auto-insurance company owned by Berkshire Hathaway. And Buffett sings too. O.K., he attempts to sing.
(See the best Super Bowl commercials of 2010.)
The video, put together by Geico employees, shows workers breaking into song from their cubicles. The power ballad begins with a single employee singing "Jump online or call a rep / We'll guide you through it step-by-step / Twenty-four-seven we'll be there for you." Then a chorus of employees chime in, complete with guitars, drums and a cowbell. Someone dressed as the company's mascot gecko does his best Slash imitation on guitar.

Question: Is Geico in such a bad shape that Warren needs to do this kind of things? Or is he actually enjoying doing it. I'm thinking the latter.

Warren Buffett found his lost integrity?

It seems like Warren Buffett has decided that it's not the time to be a market cheerleader anymore and that getting back to the reality might be after all better than just talking his portfolio up (maybe he's actually loaded with PUTs and shorts... who knows).

In his latest inteview on ABC News, available on YouTube from this link (unfortunately, ABC has disabled the embedding function), he has some interesting comments:

• "We're not a free fall but we're not in a recovery"
• "I have never seen it [a recession] quite happen like this"
• "I don't know where it's [the unemployment rate] going to go but it's got way to go. [...] 11% wouldn't surprise me."
  
• "The numbers I was seeing told me it's going to be very very tough year."
• "It [a stimulus] is not a panacea. If a stimulus is the right thing, you hope it doesn't get watered down in many ways. Our first stimulus plan [...] every body was putting things for their own constituents".

It seems like Obama has been fooling the American by putting forward respected people like Paul Volcker and Warren Buffett. As any self-respecting politician, lying and deceiving is the name of the game for Barrack Obama, FdR. I said before: Volcker should resign. Obama does not deserve the support of these people, as he's the puppet of the Geithners and the Rubins.

Q: "During his campaign, he [Obama] threw your name as a mentor and someone he turned to for advice. How often do you speak to him now ?"
A: "Not often [laughs]"
Q: "Does he call you?"
A: "Not often, no"

Q: Do you think looking back, TARP is needed? TARP was worth it?
A: I don't think it was done in a very sophisticated way but [helped restore some confidence, even if not efficiently]

Q: What do you think about the PPIP?
A: I do not like the idea of any kind of a plan [...] where Wall Street makes a lot of money. My plan provided they do not make any money whatsoever and where the American public would make the money. [...] Wall Street owes the American people one at this point.

Ridiculous statements:

• "We were in a free fall starting in the financial markets and then spreading into the economy."
  [My comment: of course, the people collapsed under the weight of their debt and that lead to the financial collapse of the lenders. He doesn't get simple causality right...]
  
• "The best days of America by far lie ahead."
  [My comment: the American Empire is following the Roman Empire.]
  

As you can see, Warren Buffet seems against the the stimulus plans, but this doesn't prevent ABC to summarize the interview with: The "Oracle of Omaha" believes a second stimulus may be called for.

Here are the previous posts regarding Warren Buffett and Berkshire Hathaway:

• 
  
  Warren Buffett was talking his portfolio up in early May
• Yet more hypocrisy coming from Warren Buffett
• When investors start worrying about Warren Buffett's Berkshire Hathaway
  
• Warren Buffett's Berkshire Hathaway hits the wall of reality
• Losing My Integrity - Warren Buffet's Next Book?
• Warren Buffet's unhappy new year

Warren Buffett was talking his portfolio up in early May

I wrote a post in early May about Warren Buffett's comment titled "Yet more hypocrisy coming from Warren Buffett" because he was talking up Wells Fargo, and it appears he had indeed increase massively his stake in the company, before making public comments about how much he would love to buy the whole bank.

While this is nothing illegal, and maybe not even wrong, I am still a bit disturbed because I don't remember him disclosing the massive increase in his Wells Fargo allocation which I consider it being wrong morality.

(Bloomberg) -- Billionaire investor Warren Buffett’s Berkshire Hathaway Inc. added to holdings of lenders Wells Fargo & Co and U.S. Bancorp in the first quarter as the shares traded at their lowest prices in more than a decade.

Buffett’s firm, the largest shareholder in San Francisco- based Wells Fargo, increased its stake in the bank by about 4.3 percent in the first quarter to 302.6 million shares, Berkshire said in a regulatory filing yesterday disclosing its U.S. stock portfolio as of March 31. Omaha, Nebraska-based Berkshire increased its holding of U.S. Bancorp by about 2.2 percent.
[...]
Buffett is “putting his money where his mouth is,” said Gerald Martin, a finance professor at American University’s Kogod School of Business in Washington who has studied Berkshire’s investing history. “I don’t think he’s ever been this transparent about what he’s doing.”
[Comment: maybe because this "transparency" serves him at the moment?]

Investors can’t always be certain they have full information on Berkshire’s stock holdings because Buffett often receives U.S. Securities and Exchange Commission permission to delay disclosure to avoid copycat investing. Yesterday’s filing only lists equities traded on U.S. exchanges, valued at $40.9 billion as of March 31.
[Comment: This is truly amazing, I wasn't aware of that. Why does Berkshire, among all the companies in the world who have to follow the law and disclose their holdings, get special treatment?]

Here are the previous posts regarding Warren Buffett and Berkshire Hathaway:

• Yet more hypocrisy coming from Warren Buffett
• When investors start worrying about Warren Buffett's Berkshire Hathaway
  
• Warren Buffett's Berkshire Hathaway hits the wall of reality
• Losing My Integrity - Warren Buffet's Next Book?
• Warren Buffet's unhappy new year