Month: March 2013

Buffett disappointed with Berkshire’s ‘subpar’ 2012

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

Warren Buffett called 2012 “subpar” in his annual letter to shareholders as Berkshire Hathaway’s per-share book value rose 14.4 percent, less than the S&P 500’s 16-percent increase.

It’s the ninth time in 48 years this has happened. Buffett notes that the S&P has outpaced Berkshire over the past four years and if the market continues to gain this year the benchmark stock index could have its first five-year win ever.

“When the partnership I ran took control of Berkshire in 1965, I could never have dreamed that a year in which we had a gain of USD 24.1 billion would be subpar … But subpar it was.”

Buffett notes that while he believes Berkshire’s intrinsic value will probably beat the S&P by a “small margin” over time, the company’s relative performance is better when the market is down or unchanged. “In years when the market is particularly strong, except us to fall short.”

Even so, Buffett warned that he and partner Charlie Munger “will not change yardsticks. “It’s our job to increase intrinsic business value –  for which we use book value as a significantly understated proxy –  at a faster rate than the market gains of the S&P.” If they are successful, Berkshire’s share price will beat the S&P “over time.”

Berkshire’s boss did have praise for his two new investment managers, Todd Combs and Ted Weschler, writing that “we hit the jackpot with these two.” Buffett said they both outperformed the S&P by “double-digit margins” in 2012. Using a very small font, Buffett added, “They left me in the dust as well.”

Buffett also expressed disappointment that Berkshire didn’t make a major acquisition last year. “I pursued a couple of elephants, but came up empty-handed.”

Echoing what he told us after Berkshire announced two weeks ago that it’s teaming up with 3G Capital for a USD 23 billion acquisition of HJ Heinz, Buffett said even though that deal accounts for much of what Berkshire earned last year, “we still have plenty of cash and are generating more at a good clip.”

“So it’s back to work; Charlie and I have again donned our safari outfits and resumed our search,” Buffett said.

(Read More: Warren Buffett: ‘I’m Ready for Another Elephant’)

Buffett criticized “hand-wringing” from CEOs who “cried ‘uncertainty’ when faced with capital-allocation decisions.” Berkshire, he said, spent a record USD 9.8 billion on plants and equipment last year. “We will keep our foot to the floor and will almost certainly set still another record for capital expenditures in 2013. Opportunities abound in America.”

Buffett still sees an opportunity in local newspapers. Berkshire has spent USD 344 million to buy 28 dailies, and Buffett expected more purchases of “papers of the type we like” at “appropriate prices.”

Even though he still believes overall newspaper industry profits are “certain” to drop, Buffett likes smaller community-oriented newspapers that provide local news and information that can’t be obtained elsewhere. “Wherever there is a pervasive sense of community, a paper that serves the special informational needs of that community will remain indispensable to a significant portion of its residents.”

Buffett isn’t a fan of giving that information away for free on the Internet, pointing out that an Arkansas paper has retained its circulation “far better than any other large paper in the country” after it was an early adopter of a pay model.For its fourth quarter, Berkshire’s operating earnings per share came in at USD 1704, below the consensus estimate of USD 1755 from the few analysts who follow the firm.

(Read More: We Want Your Questions for Warren Buffett)

The company’s net earnings were USD 4.55 billion in the quarter, up from USD 3.05 billion in last year’s Q4. That includes “paper” gains for derivatives contracts Berkshire has sold that provide insurance against losses for some corporate bonds and stock indexes.

The bond-related contracts will expire in the next year. Buffett expects they will generate a USD 1 billion pre-tax profit. After unwinding about 10 percent of its exposure in 2010 at a profit of USD 222 million, the remaining stock index contracts will expire between 2018 and 2026.

Warren Buffett will be live with Becky Quick for all three hours of CNBC’s Squawk Box this coming Monday morning starting at 6 am ET. We want your questions. Send them by email to AskWarren@cnbc.com or by Twitter with the hashtag #askwarren.

Click here for the latest quote on Berkshire Hathaway’s Class B shares.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Obama presses Congress for deal to end US spending cuts

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

Just hours after across-the-board spending cuts officially took effect, President Barack Obama pressed Congress on Saturday to work with him on a compromise to halt a fiscal crisis he said was starting to “inflict pain” on communities across the United States.

Obama and a bipartisan group of congressional leaders failed on Friday to avoid the deep spending reductions known as the “sequester,” which automatically kicked in overnight in the latest sign of dysfunction in a divided Washington.

If left in place without legislative remedy, government agencies will have to hack a total of USD 85 billion from their budgets between Saturday and Oct. 1, cuts that over time could cause economic harm, slash jobs and curb military readiness.

“These cuts are not smart,” Obama said in his weekly radio and Internet address. “They will hurt our economy and cost us jobs. And Congress can turn them off at any time – as soon as both sides are willing to compromise.”

Obama signed an order on Friday night that started putting the cuts into effect.

At the heart of Washington’s persistent fiscal showdowns is disagreement over how to slash the budget deficit and the USD 16 trillion national debt, bloated over the years by wars in Iraq and Afghanistan and government stimulus for the ailing economy.

The Democratic president wants to close the fiscal gap with spending cuts and tax hikes – what he calls a “balanced approach.” But Republicans do not want to concede again on taxes after doing so in negotiations over the “fiscal cliff” at the New Year.

“The discussion about revenue, in my view, is over. It’s about taking on the spending problem,” John Boehner, the Republican House of Representatives speaker, said on leaving the talks between Obama and congressional leaders on Friday.

As Obama and his aides have done for weeks, the president in his radio address offered a litany of hardships he said would flow from the sequester, saying, “Severe budget cuts have already started to inflict pain on communities across the country.”

“Beginning this week, businesses that work with the military will have to lay folks off. Communities near military bases will take a serious blow. Hundreds of thousands of Americans who serve their country – Border Patrol agents, FBI agents, civilians who work for the Defense Department – will see their wages cut and their hours reduced,” he said.

“The longer these cuts remain in place, the greater the damage,” he said. “Economists estimate they could eventually cost us more than 750,000 jobs and slow our economy by over one-half of one percent.” Despite that, financial markets shrugged off the stalemate on Friday.

No signs of negotiations

While Obama has put the blame for the cuts on Republicans’ intransigence and their determination to protect tax breaks for the wealthy, Republicans insist he is responsible for the fiscal predicament. They also accuse him of exaggerating the expected impact.

Obama appealed for Republicans to work with Democrats on a deal, saying Americans were weary of seeing Washington “careen from one manufactured crisis to another.” But he offered no new ideas to resolve the situation, and there was no immediate sign of any negotiations planned over the weekend.

“There’s a caucus of common sense (in Congress),” Obama said. “And I’m going to keep reaching out to them to fix this for good.”

One reason for the inaction in Washington is that both parties still hope the other will either be blamed by voters for the cuts or cave in before the worst effects predicted by Democrats come into effect.

A Reuters/Ipsos poll released on Friday showed 28 percent of Americans blamed congressional Republicans for the sequestration mess, 18 percent thought Obama was responsible and 4 percent blamed congressional Democrats. Thirty-seven percent blamed them all, according the online poll.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow