Revised
and originally published 1.04.2010
Abstract: This is a
continuation of my previous blog[1] published Nov 4, 2009 after Warren
Buffett purchased the Burlington Northern Santa Fe railroad with funds from
Berkshire Hathaway. He paid $34 billion and a premium price of 30% beyond the
value. BH’s performance was dismal [2]in 2009 even as the market
soared since Mar 9. Buffett apparently has numerous schemes to buy tax credits
from Fannie Mae and has secret deals with Goldman Sachs and other banks that
are in with Tim Gheitner and Bernanke.
This heavy rail system he bought is an old aged disaster in terms of the
ecology and must lose untold millions of dollars on commuter rail systems that
may well be replaced by light rail in direct competition with Buffett. There is
no way he can make money in my view without help from greedy politicians and
bailouts to this business from the federal government in the manner of GM and
Chrysler. This looks like the next GM disaster to me.
Updates [and changes] from previous blog in blue:
The Buffet performance
against the SP500 as of 04 Jan
2010 :
“Shares in Berkshire Hathaway, the company that Mr Buffett
has run for more than four decades, rose 2.7pc on the New York Stock Exchange last year
compared with a 23pc gain in the Standard & Poor’s 500 Index, according to
Bloomberg data.
It was the weakest
showing by Berkshire , which is based in Mr
Buffett's home city of Omaha Nebraska Berkshire
has beaten the S&P500 in 15 of the last 22 year.”[3]--
Warren Buffett
delivers worst performance versus the S&P 500 in a decade Warren Buffett delivered his worst
performance against the US 04 Jan 2010 [Emphasis is mine in
all quotes.]
Update: My fear is
this guy can [1] make his own markets and [2] get favors and support from
governments and unions to subsidize those markets as they are frantic to ‘add
jobs’ and restore the economy to normal. He can apparently lead a flock around
at will like the Pied Piper. He paid a huge 31% premium [known as good will]
for the rail company on the remaining 77% of stock he didn’t own at the time
and what this is based upon is not clear but looks like a mistake on a pure
business and growth basis.[4] This is potentially a
classic case of back-integration of the sort that sank The Great Atlantic and
Pacific Tea Company. Heavy rail is out of date and only suited to carry very
heavy cargo such as ships might deliver to our ports. In the future we expect to see things like
robot trucks guided by GPS with no
drivers moving freight safely along sparsely traveled roads using methane gas
or hydrogen for fuel. Since our imports must decline from the world trade
problems [after all, our dollar is sinking and India China Asia . It is also a
commuter line from many places such as Chicago Aurora US
This is not a progressive, green or high tech business that can add
new and novel jobs. This is very old technology that is undermined by politics,
greed and corruption. Their
right-of-ways are enormous tax targets for frantic cities. Their engines leave enormous carbon foot
prints. The only basis for making a profit here are government favors, union
deals, high government subsidies and preferential government rules, regulations
and tax breaks. This is such a tangled mess I cannot see how the scan might
work but if it loses money then we
can expect the government and unions to jump in and this might be the very next
GM or Chrysler that is ‘too big to fail’ and some TARP money might fly that
way to bail out Buffett, make him some juicy profits and stick the
taxpayer with the rest of the trash as they have done with GM.
This one smells.
There
was a famous scam that continues to be reinvented and it goes like this:
Somebody calls you up and gives you a guaranteed bet on some stocks. This will
work! When the stock goes up, as he promised, he calls back and gives you a
second pick and makes the same guarantee. When that pick goes up he calls you
back and offers you the Big One. Only a fool would pass up this new tasty
morsel so the sucker buys in and the stocks drops. What has happened is that the scammer had
made phone calls to several thousand people using a dozen different stock picks
and only called back the marks on the list when their particular assigned stock
hit. Same process was used for the second round to provide ‘proof’ that this
guy was a stock wizard. The third pick, with very few remaining marks in tow
was actually some phony off shore shell where they cashed promptly in the sucker’s
money and fled the Caymans. This is a boiler room art form. I wonder if
Berkshire Hathaway is playing this game with our government.
A
more appealing version of this scam is to observe that some people can apparently
just pick the best stocks from a market array and that there must be something innate
or magical about this person given their ‘record.’ Might I recall for
discussion one Joseph Granville[7]
for all of you to wonder about who ‘controlled’ his own markets with his
recommendations and then he picked the wrong direction and the whole scam went suddenly
crashing down. His Granville Market
Letter produced average loses of 20% per year for a quarter century. [8]
Nevertheless his calls produced remarkable results on April 22, 1980 (+4.05%) and on January 6, 1981 . That was
all the ‘proof’ that he needed. Jean Dixon
was like that and gained fame with a single prediction about JFK. We must survey
a broad picture of all the picks from the celebrated pickers and perform some
analytical work or we invite disaster under the conception of the "the Jeane Dixon effect,” which
refers to a tendency to acknowledge a few correct predictions while ignoring a
larger number of incorrect predictions.”[9] “She
predicted that World War III would
start in 1958 over some offshore Chinese
Islands
Buffy
the Bozo does not go so far as to run a freak show “…featuring a trained chimpanzee … could play Granville's
theme song "The Bagholder's Blues," on piano” in his works. But the investment world
has never had a sage that lasted very
long as we find from Elaine “Go-Go“ Garzarelli’s predictions of the 1987 stock market crash[11], (along with me). She has done poorly
since.[12] I have done better. She called “it”
weeks before the crash and I sold out on Wednesday of the week before the Black Monday[13] crash. Her crystal ball must have gone
murky as her predictions since then have been spotty. See footnote.[14] She did pick Lehman and Bear Stearns
for 2007 and 2008 stock picks, but nobody is perfect. My record is spotty too
with picks like Texas Instruments at $86 and Oracle at the wrong time and then
Sun. My Arriba pick did soar from $25 at IPO to some $145 with a couple of
splits along the way producing a $14,000 return on a measly 25 shares that I
paid 525$ for including commissions and a flip or Red Hat was fun—owing the
stock for 11 min and making $1100 dollars on the opening of the IPO. But, what
heck—that was just luck. There is a limit to luck and sooner later we must find
that the ‘luck’ is manufactured if it looks too promising and that is the
subject of today’s blog: nobody is that good or that lucky
in the long term.
Not
to get us too far off the track with personalities we need to make something
clear: nobody can predict the markets
and most take a big hit along the way like Garzarelli and Granville and many
others have done. The fund manager for
my old mutual fund Wellington Fund lost money for 11 years in a row since its
inception in 1960 and he is considered one of the best. I can give a wide
margin for allowing for guesses for most stock pickers until somebody wants me to
dive under a steaming freight train for a nickel or two. The current euphoria
about rails by Buffett apparently ignores the salient facts that the unions in
league with the Democrats poisoned the rail business in the last 150 years and
the whole mess crashed and morphed in the soggy stinky messes now known as
Amtrak and Conrail. They were regulated to death by politicians and unions. Union
feather bedding and work rules and the mandate that the rail companies keep
running empty passenger cars wrecked the business.[15] The worthless Amtrak system has never
made a profit since 1970. Nada—zip and their cars stink, are windy and drafty
and cold and the food is crap. Here is some political history on train wrecks:
From the New York Times of July 6, 1970 . we read:
“THE nation's largest railroad succumbed last
week to a lethal combination of politics [Time blames Nixon here--ed], tight money, mismanagement and fumbled Government rescue efforts. A
federal court ordered the tottering Penn Central Transportation Co. into a
bankruptcy reorganization.”[16]
Does this sound familiar?
“Many Congressmen and Senators [read Democats here too ed.] questioned whether the Government ought to come to the
aid of any private company—large or
small—with a record of sloppy management.”[17] [Emphasis is mine in
all quotes.]
Now,
we spring the trap: More money is apparently need to infuse this corpse so
Buffy has decided to split his Class B shares 50:1 to get more “ordinary
investors” to buy in. Does this sound like a Three Card Monte game[18]
yet?
“Buffett's decision to conduct a 50-for-1
split of Class B shares of his Berkshire Hathaway Inc lowers the price of entry for ordinary
investors who long found it prohibitively costly to buy the stock”--More
people now likely to invest with Buffett
Well, there is a sucker
punch for you. Can you follow the peanut as it bounces along between the magical
walnuts?
He
might, but he ignores the economic fundamentals here. But, he could do this with union help and the
Democrats of course, groveling stooges to unionism. The several states where he
now owns right of ways are bound to see this as a tax target and the regulators
and such will pile on new restrictions and fees and such as what happens when
the bandwagon comes to town with a trailer full of fresh straw and all the
hookers and cops and politicians grab a sausage sandwich, some beer and jump in
the pile for a great ride. He can probably get around these hurdles with some
political assistance and make a pile. My view of this wreckage is that Buffett
is betting [or is assured] that he can make money in spite of the unionism and
regulatory costs and the offensive sputum of the EcoNazis who will rail and bawl
over his heavy rail system and cite light rail options instead. He must have a
deal cooking here.
Buffet
is also in a scam to buy tax credits from the phony and bankrupt Fannie Mae, a
disgraceful plundering of the US
“The credits are virtually worthless to Fannie Mae and
require the company to take losses each quarter as their value declines.
Companies such as Berkshire Hathaway and
Goldman Sachs could use them to offset federal tax expenses.”
[20]--Buffett Joins Goldman
in Bid for Fannie Mae Tax Credits November 4, 2009
[1]
A deal with MidAmerican
Energy and Constellation Energy (CEG).
This is a nukie pooh Power Company and is allied in some way with the French.[22]
[2] He
paid “$5 billion for Goldman Sachs (GS) preferred shares
that pay a 10%
dividend.” Isn’t that sweet! Another TARPIE Sweetie! [Emphasis is mine in
all quotes.]
We currently get 0-0.25% from government bonds. How sweet?
Or, how sour??
[3] His
company “agreed to buy $3 billion of preferred General Electric (GE) stock. This stock pays a generous dividend of 10%.
On top of that, Berkshire gets the option to
buy $3 billion of GE common stock at $22.25 per share, well under the current
trading price of around $25 a share.”
[4]
“Wells Fargo (WFC ) said early Friday
that it would pay 0.1991 of a share of common stock in exchange for each common
share of Wachovia Bank (WB) in a deal worth $15B. Berkshire Hathaway is the
largest shareholder of WFC . That's
a whopping potential for over $30B in deals with up to $16B in cash.” A quickie 100% deal falling
something short of Hillary Clinton’s 1000X cattle futures deal.[23] Isn’t Wachovia a TARPie?
This is not the program of an ‘enlightened’ investor this
is what a political crony does. There is the stench of insider trading
swirling around here.
Somewhere
buried deep in this rail road junket is some artificial sweetness that has yet
to surface. To think that he can make money in an industry polluted by unionism
and a myriad of state laws and his offensive energy systems that burn oil and
coal for their electricity and fuel is an insult to the Green Weenies[24][25][26][27][28][29][30][31][32][33][34]. They will keep silent only if they are bribed.
Buffy is not an ‘investor’ --he is a political opportunist
[like the Harpy—e.g.-- “…one of the
winged spirits best known for constantly stealing all food from Phineas [the “government”,
ed]”] who swims in the sleazy political latrines of corruption. I suspect these
are just fixed insider deals and have little to do with ‘investing.’
I think this railroad gig is a fait accompli and the taxpayers will provide him with huge profits.
Buffet’s chimp, played by Goldman Sachs, is playing new versions of The Bagholder's Blues” for the suckers and
taxpayers and I think the taxpayers are going to wind up holding an empty bag.
rycK [a 5th generation Californian
in exile]
Comments
to: ryckki@gmail.com
[1] Buffy the Bozo Buffett
Blows his Baloney Wad in Rails? He must have Another Sweetheart Done Deal in
the Bag.
[3] Warren Buffett delivers
worst performance versus the S&P 500 in a decade
Warren
Buffett delivered his worst performance against the US
[4] Buffett Bets Big on Railroad Berkshire
to Buy Burlington Northern for $26.3 Billion, in Long-Term Bullish Signal Berkshire agreed to purchase the 77% of the Fort Worth , Texas
[8] The
Granville Market Letter "is at the bottom of the Hulbert Financial
Digest's rankings for performance over the past 25 years - having produced
average losses of more than 20 percent per year on an annualized basis." http://en.wikipedia.org/wiki/Joseph_Granville
[14] These investors ended up being sorry. In 1988, Garzarelli's
fund was the worst-performing fund among growth stock funds. From 1988 to 1990,
Garzarelli's fund underperformed the S&P 500 average by about 43 percent!
So even the few investors who were in her fund before the crash in 1987 (when
Garzarelli's fund outperformed the S&P 500 by about 26 percent) still lost.
What she saved her investors by avoiding the crash she lost back (and then
some) in the years that followed.
The Dumb Things People Do When Worried About The Safety of Their Money. By Eric Tyson.
The Dumb Things People Do When Worried About The Safety of Their Money. By Eric Tyson.
“To my
amazement, media outlets are still asking Garzarelli for her predictions and
here's what she told Business Week in late 2007 for her 2008
predictions: "Garzarelli is advising investors to buy some of the most beaten-down
stocks, including those of giant financial institutions such as Lehman Brothers, Bear Stearns, and Merrill Lynch. What would cause her to
turn bearish? Not much. ‘Our indicators are extremely bullish.'"
She also said the Dow would close 2008 at 16,000! Could she have been more
wrong?!” http://www.erictyson.com/articles/20090103
[17] The hardest blows were struck by Wright
Patman, chairman of the House Banking Committee. He was a Democrat and a
Baptist. http://www.time.com/time/magazine/article/0,9171,878372,00.html
[19] The American
Bankers Association (ABA) has lobbied congress to cancel the warrants owned by
taxpayers, calling them an "onerous exit fee."[57] Yet, if the Capital Purchase Program warrants of Goldman
Sachs are representative, then the Capital Purchase
Program warrants were worth between $5-to-$24 billion dollars as of May 1, 2009 . Thus canceling
the CPP warrants amounts to a $5-to-$24 billion dollar subsidy to the banking
industry at taxpayers expense.[58] While the ABA
[21] A financial image of a harpy but uglier.
http://en.wikipedia.org/wiki/Harpie
This
reference covers all quotes in [1] to [4] in the text.
[24] 300 Years of British
Inbreeding Brings us Flop Ears the EcoNazi Prophet of Doom
[25] More Americans Doubt
Global Warming and Other Forms of EcoNazism
[26] Krugman Explains
EcoNazism in the Warmest Terms. Tax Tax Tax
[27] Friedman Bawls about
Balls and Can Show Nothing. EcoNazism and Propaganda at Work.
[28] The EcoNazis are
Frantic for your Money!
[29] The Terminal Financial
Psychosis of California
[30] A
Translation of the Bailout Plan for Detroit
[31] Flop Ears the EcoNazi Prophet
of Doom Raises the Spectre of Disaster from GM Food Production
[32] The EcoNazis and
Reality: Klaus Offers to Debate Al Gore.
[33] Proof that McCain is a Moron
[34] Reason and Faith
Assault the Phony EcoNazis and Their Lackeys.
No comments:
Post a Comment