The Great Debate

By Keith Mullin, Editor at Large, International Financing Review
The views expressed are his own.

Warren Buffett’s $5 billion injection will not stop the rot at Bank of America.

If anything, it proves that the bank’s naysayers were right to be wary.

In the aftermath of the news, dealers aggressively marked BofA’s CDS levels tighter, and the stock leapt from $6.99 at Wednesday’s close to an intra-day high of $8.80 Thursday. But the stock slid all the way back down to close at $7.65. Even at that momentary intra-day high, it was still down 38 percent YTD and 81.5 percent off the long-term high of October 2007. Hardly inspiring.

Frankly I expected a bit more enthusiasm, but then again given the extent of the bank’s longer-term issues, perhaps my expectations were overdone. CEO Brian Moynihan still has a lot of work to do to avoid the slow grind to ignominy. I think the Buffett episode actually undermines Moynihan and makes him look a bit, well if not a bit of a fool, then certainly desperate.

This is, after all, the man who said publicly that the bank didn’t need to access capital markets, and that he would get the bank up to higher capital adequacy levels and stabilise the ship via a combination of retained earnings (tough in a potentially recessionary environment), disposal of risk-weighted assets ($150 billion or so), lay-offs, and the sale of non-core businesses.

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 When the “Noble Experiment” was repealed in 1933, states were given the power to regulate alcohol within their borders.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.

(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.

Warren Buffett is back as the nation's financial conscience, publishing an op-ed in yesterday's NYT lamenting the dangers of too much monetary and fiscal stimulus. As regular readers of this blog are aware, that's a message with which I wholeheartedly agree. My problem with Buffett's piece is that he makes a good argument and then totally undercuts it in his conclusion:

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

This have-your-cake-and-eat-it-too approach is typically what we get from Paul Krugman: Yeah, debt is a problem and has to be dealt with long-term, but in the meantime we should jack up deficit spending in order to boost growth. To paraphrase St. Augustine, make us fiscally and monetarily prudent, just not yet. Ben Bernanke said something of that sort in a speech. He was trying to be funny.

When I was 14, Warren Buffett wrote me a letter.

It was a response to one I'd sent him, pitching an investment idea.  For a kid interested in learning stocks, Buffett was a great role model.  His investing style -- diligent security analysis, finding competent management, patience -- was immediately appealing.

Buffett was kind enough to respond to my letter, thanking me for it and inviting me to his company's annual meeting.  I was hooked.  Today, Buffett remains famous for investing The Right Way.  He even has a television cartoon in the works, which will groom the next generation of acolytes.

But it turns out much of the story is fiction.  A good chunk of his fortune is dependent on taxpayer largess. Were it not for government bailouts, for which Buffett lobbied hard, many of his company's stock holdings would have been wiped out.

– Jonathan Ford is a Reuters columnist. The views expressed are his own –

The credit crunch has exposed many one-time financial heroes as having feet of clay. Even the great Sage of Omaha, Warren Buffett has fallen from grace.

The shift in mood has been brutal. The price of shares in the Sage’s investment company, Berkshire Hathaway, has more than halved since last September. Meanwhile, his one-time iron-clad balance sheet now looks rather frail. The credit default swap market is saying that the company’s vaunted AAA rating is so much baloney. Berkshire’s bonds are trading close to junk levels.

— James Saft is a Reuters columnist. The opinions expressed are his own –

By James Saft
NEW YORK (Reuters) – Some time before the end of the year it is a good bet that stock markets will throw off their gloom and begin a powerful rally of as much as 15 or 20 percent.

Some time one to three months after that it is a good bet that the prospect of a deep global recession and shockingly bad earnings will send them right back down again to make new lows. Rallies in the midst of bear markets can be sustained, powerful and feel very much like the ones that often mark the beginning of a real recovery.