The Great Debate UK
from The Great Debate:
Why does Warren Buffett hate oenophiles?
By David White The opinions expressed are his own.
Warren Buffett’s Berkshire Hathaway recently purchased Tennessee's largest alcoholic beverage distributor. This move comes just months after Berkshire Hathaway also acquired liquor distributors in Georgia and North Carolina.
This is a bad sign for consumers. It's yet more proof that America's anachronistic system of alcohol distribution is here to stay. This system -- which exists only because of government regulations -- stifles consumer choice and keeps prices artificially high.
The laws that keep consumers away from alcohol date back to prohibition. When the "Noble Experiment" was repealed in 1933, states were given the power to regulate alcohol within their borders. Some chose to take over the sale and distribution of alcohol. But just about every other state created a "wholesale tier" to sit between producers and consumers.
In part, this was at the urging of temperance activists and retailers. Prohibitionists blamed producers for all the ills associated with drunkenness. Restaurants and liquor stores didn't like the power that producers could wield. By creating a middle tier, lawmakers hoped to weaken the influence of brewers and distillers. Instead, they simply made wholesalers incredibly powerful.
Southern Wine and Spirits, America's largest liquor distributor -- and one of the nation's largest private companies -- had revenues of nearly $8.5 billion in 2008.
from Breakingviews:
Buffett’s crisis bets outrunning his freight train
Warren Buffett's annual missive to Berkshire Hathaway's shareholders is out. Among the usual folksy nuggets, the Sage of Omaha notes that he funded Goldman Sachs, General Electric and others at the height of the crisis.
The $21 billion invested is now worth a quarter more and yields 10 percent annually. Short term at least, that's more than Buffett's bet on railroad Burlington Northern Santa Fe is likely to deliver.
Berkshire has deployed a similar amount of cash to buy BNSF -- some $22 billion. It has also issued stock. That's why Buffett's latest letter is partly a primer for the 65,000 new shareholders the deal added to the half million or so that Berkshire already had.
Even Buffett, though, admits that the decision to buy BNSF in November was a "close one". The generous $34 billion price tag for the rail company's equity looked even higher from Buffett's point of view because he paid partly in stock. He and his investing partner Charlie Munger like issuing shares "about as much as we relish prepping for a colonoscopy", the 79-year-old Buffett writes.
It's an expensive, long-term punt on a capital-intensive industry: Buffett at the time described it as "an all-in wager on the economic future of the United States."
Meantime the $21.1 billion invested in the past 18 months in Dow Chemical, GE, Goldman, Swiss Re and Wrigley -- a combination of confidence-building injections and pre-agreed investments -- has delivered more instant gratification.
Those holdings are now on the books at $26 billion, and they throw off $2.1 billion of interest and dividends annually.
Warren Buffett likes trains – which isn’t a bad thing – and his pal Bill Gates is the single largest shareholder in Canadian National Railways, so it’s hardly surprising the sage of Omaha bought himself a shiny new electric train set to run under the tree at Christmastime. People nowadays look down on railroads: too much capital, too much labour, too much history, too much TOO MUCH. Mr. Buffett isn’t stupid, nor is Mr. Gates. Consider their investments in rail as something to emulate.
from The Great Debate:
Buffett uses BNSF to bet on coal
(John Kemp is a Reuters columnist. The views expressed are his own)
Warren Buffett's acquisition of the remaining 77.4 percent of Burlington Northern Santa Fe (BNSF) railroad his Berkshire Hathaway does not already own looks like a strategic bet that America's future energy needs will be met, in large part, through a massive expansion in coal-fired power generation coupled with carbon capture and storage (CCS).
Coal is the most important item moved on BNSF's railroads. It accounted for almost half the tonnage moved by BNSF in the first nine months of the 2009 (214 billion revenue ton miles out of a total of 444 billion) and a quarter of the company's revenues ($2.7 billion out of a total of $10.4 billion).
BNSF's track and rights of way are perfectly positioned to benefit from a massive expansion of the country's coal-fired output in the next 20 years, coupled with CCS technology to curb the carbon-dioxide emissions.
BNSF controls the crucial rails linking the massive domestic reserves of the Powder River Basin, the Northern Great Plains, the Western Interior Basin and the Illinois Basin east to the main industrial centres of the Midwest and west to the major electricity demand centres in southern California.
* http://pubs.usgs.gov/of/1996/of96-092/Comp/main.gif * http://www.eia.doe.gov/cneaf/coal/reserves/chapter1.html#fig1 * http://www.bnsf.com/tools/reference/division_maps/?menu=5&submenu=0 * http://graphics.thomsonreuters.com/109/US_ENRGY1009.gif
When Warren was talking about the collapse of the market we all should have been buying, however I’m going to have to say that history will say that this purchase should have been an interim sell indicator.
Warren, despite his historic success, has become emotional about the market. He is becoming less of a student of the market and more of a teacher and anyone who thinks they can ‘teach the market’ is about to learn a lesson. No matter how you are, the market is bigger.
Warren’s ‘All in’ on the recovery is a bad bet.
The macro trade has been to fade Warren.
I think his recent purchase by Berkshire is a good indicator that the market is overbought and investors should raise cash.
In short, Sell.
