Monday, May 23, 2011


BRK.B shares have become very cheap, and its share price is at an historically wide discount to intrinsic value.

Though an important component of the company's investment portfolio is financial, it has a noticeable nonfinancial component to its operations.

The yield on the U.S. 10-year note broke below 3.10%. This is a reflection of lower growth and inflationary expectations.

"The generation that had information, but no context. Butter, but no bread. Craving, but no longing."

-- Meg Wolitzer (referring to today's high school students), The Uncoupling

Back in 1930, Laurel and Hardy introduced their catchphrase, "Well, here is another nice mess you have gotten me into," which brings me to the role of technology (especially social networking) and the (potential) mess that it might get some into.

In The New York Times magazine section over the weekend, Bill Keller writes an intriguing column entitled "The Twitter Trap," which highlights social media as an enemy of contemplative thought.

Nicholas Carr's "Is Google Making us Stupid?"cover story in The Atlantic from 2008 argues that the Internet has had detrimental effects on cognition that diminish our society's capacity for concentration and contemplation.

Technology brings with it progress and enhancements to our life and, often, savings to consumers -- we generally gain more than we lose -- but there is a downside to its transformative role and the staccato pace that accompanies its innovation.


* The television muffled creativity, discourse and interaction.

* The typewriter killed penmanship.

* The pocket calculator reduced a generation's math skills.

* GPS impaired our sense of direction.

* Texting diminished our language skills and our vocabulary.

* Our memory capacities have been weakened by Google.

* The ephemeral nature of social media such as Facebook and Twitter, creates stunted relationships and has damaged our attention span -- they are almost asocial.

"Before we succumb to digital idolatry, we should consider that innovation often comes at a price. And sometimes I wonder if the price is a piece of ourselves." - Bill Keller, "The Twitter Trap"

To some degree, technological innovation has penalized patience, limited the emphasis on wisdom and has even de-emphasized intimacy. We may be at risk of losing our souls, and, in the long run, our relationships are worse off.

And what about our investing? What role has technology had on influencing our analysis, our actions and our investment results?

Here are some examples of technology as a disruptive force in investing:

* Portfolio insurance was an important contributing factor, if not the cause, of the October 1987 stock market crash.

* Quantitative models/strategies have likely fostered and exaggerated group/stock moves to levels above and below intrinsic value.

* High-frequency trading was likely the catalyst to the May 2010 stock market flash crash.

* A dependency on 140 characters while tweeting and/or the use of message boards simplify a trade or investment.

Fast and simple can be superficial, stupid and harmful to one's investment/financial well-being as there is no substitute for doing your homework.


* A low in bond yields: The continued drop in the yield on the 10-year U.S. note to 3.15%. While auction supply has been large, the yield on the 10-year US note has dropped to 3.10%. Taken in isolation yields are signalling lower domestic growth and inflation.

* A double dip in housing: A still-large shadow inventory of badly delinquent and foreclosed homes continue to weigh on home prices, which resumed their fall in first quarter 2011. April housing starts (523,000 vs. expectations of 570,000 and March's 585,000) and permits confirmed a continued weak residential real estate market. The National Association of Homebuilders confidence index was still mired near all-time lows. A double dip in housing appears increasingly likely. Though new housing production is now at a record-low percentage of GDP, another leg lower will adversely impact consumer confidence and, as reflected in the continued weakness in bank stocks, could impair lending.

* Worrisome group rotation: The continued improvement (absolutely and relatively) of the consumer nondurable sector. The staple sector - for example, CL, CLX, PEP, PG and so on -- regained its leadership role last week, which is another (technical) warning sign.

* Weakening commodities: We have witnessed a decline in the price of copper (to below its 200-day moving average), oil and other major industrial commodities. The downward trend in commodity prices (and industrial and materials share prices) continued with a vengeance late last week, and this trend continues this morning (led by a $3-per-barrel drop in oil) as the U.S. dollar gaps higher in early-Monday-morning trading.

* Economic indicators flash caution: A multiyear low in the Baltic Dry Index, a weak household jobs survey, the ISM nonmanufacturing index falls to the lowest level in nine months and, for the fourth straight week, we get an initial jobless claim print above 400,000. A weakening Philly Fed purchasing managers index (PMI), a disappointing Empire State manufacturing index, and a poor April industrial production report (unchanged compared to +0.4% expectations and +0.7% in March) led an array of economic indicators last week that conspired to create more economic ambiguity for 2011-2012 (and to threaten the view of a smooth and self-sustaining recovery). Over there, it was reported this morning that the May eurozone PMI sunk to 55.4% from 57.8% (consensus was for only a -0.4% decline). The flash May China PMI fell to 51.1%, the worst print in nearly a year.

* Emerging weakness in non-U.S. markets: A break is developing in the natural-resource-based regional markets of Australia, Mexico, Canada and Brazil. Emerging markets continued to break down in response to the descent in commodity prices.

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