Friday, April 1, 2011


Apple Breaks 50-Day

Why the Rally in Financials?

Let me give you a few reasons:

1. catching up;
2. a technical breakout of some short-term downtrends;
3. some momentum players joining the party; and
4. Dudley's dovish comments.

P.S. -- With a large financial exposure, Berkshire should benefit in the fullness of time.

Birth/Death Boost

According to the BLS websites, the better-than-expected jobs growth was prompted by a big move up in the BLS birth/death model, which created 36,000 more jobs (to 117,000) than a year ago.

The Other Side of the Jobs Coin

All did not come up roses in today's jobs report.

The weakness in the wage data is conspicuous -- average weekly and hourly earnings didn't budge. At the same time, average weekly hours were flat at 34.3.

This is bad, as wages are not keeping up with steadily rising inflation (especially of an energy kind).

In a setting in which jobs are being created too slowly, and with limited wage growth in the face of rapidly rising prices for food, gasoline and other goods, consumer confidence will remain subdued.

According to the fed fund futures market, the odds of a December 2011 rate increase has doubled to almost 65% now.

Who Will Replace Warren Buffett?

Warren Buffett's replacement is Warren Buffett.

"Contemplating any business act, an employee should ask himself whether he would be willing to see it immediately described by an informed and critical reporter on the front page of his local paper, there to be read by his spouse, children and friends."

-- Warren Buffett

"We can afford to lose money -- even a lot of money. But we can't afford to lose reputation -- even a shred of reputation."

-- Warren Buffett

"It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently."

-- Warren Buffett

To be direct, this week was a foul moment for Berkshire Hathaway (BRK.A/BRK.B), Warren Buffett and the now-disgraced David Sokol.

While most of the business media has given Sokol the benefit of the doubt, with the exception of CNBC's Joe Kernen, who properly and boldly acknowledged on "Squawk Box" that Sokol ran in front of the Berkshire-Lubrizol (LZ) merger, most investment and legal professionals recognize that Sokol's actions skirted the law -- no matter how he rationalized his Lubrizol investment.

The principal question concerning investors in Berkshire Hathaway is this: Who is now the best candidate to replace Warren Buffett?

My answer?

Warren Buffett's replacement is Warren Buffett, that's guaranteed.

As a result of this week's event, the Oracle isn't going anywhere. In fact, in the months ahead, I expect Buffett to adopt an even higher profile and to be more active in the acquisition arena.

It's the Buffett way, the way in which he will react to the grave disappointment in Sokol's actions.

And that is a positive for Berkshire Hathaway's stakeholders.

Ironically, as a result of the Sokol fiasco, the Buffett premium could expand, not contract, in the face of the renewed certainty that the Oracle is going to be around for a while longer.

As a newly minted Berkshire Hathaway shareholder, I fully expect the company's share price to move ever closer toward its estimated year-end 2011 intrinsic value of approximately $180,000 a share, or nearly 50% above its current share price.

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