5/29/14…is TB ‘buffetting’ Buffett?

Quote of the Day from the Friars Club Encyclopedia of Jokes: “On cable-TV they have a weather channel. We had something like that when I was growing up. We called it a wondow.”
– Dan Spencer

TB says: if Sandra Fluke is a ‘slut’, Rush Limbaugh is a whore. Recall, he was originally a liberal who saw more money in being a reactionary. Makes you just love freedom of speech. But then, the notoriety allowed her to run for public office…unintended consequences for the Rushster

Bloomberg Top Stories:
*U.S. Economy Shrank for the Firs Time In Three Years as Investment Fell – S&P at high???
*First-Time Unemployment Claims in U.S. Fell by 27,000 Last Week to 300,000 – contrarian?
*Dollar Weakens as U.S. Treasuries Advance After GDP Data; Copper Retreats – and gold!
*Tyson Makes $6.8B Offer for Hillshire to Challenge Pilgrim’s Pride
*Goldman Sachs Is Avoiding Bonds Favored by Pimco’s Gross for ‘New Neutral’ – go with GS!
*Bond Market’s Worldwide Rally Sends Sovereign Index Yield to One-Year Low – !!!
*AIG Cites Labor Cost Arbitrage as Hancock Moves jobs to Phillipines, Texas – wait isn’t the company we just bailed out???
*Dish Network Will Allow Subsribers to Pay Satellite-TV Bills With Bitcoin – short DISH! Also, IRS has ruled it is NOT a currency…a big scam if you ask TB! Who created it? Shouldn’t you know?
*Death Planning Postponed With Marriage by Milennials, Pressuring Insurers – annuities too!
*Ruble Bears Unimpressed by Rebound as Putin Chokes Off Growth – a BIG NYET!!!
*Rich Man’s Nightmare Evoked by Piketty Sparks Debate Over Inequality Charge – Oligarchy!
*Rebel Attack on Ukraine Helicopter Kills 14 as Russia Warns of War Threat – what is Russia’s…
*Cuba Embargo Under Pressure in U.S. as Obama Urged to Knock Down Barriers – something we should have done a couple of years ago when Castro’s health declined…wake up U.S.A.!
*Putin Forms Ex-Soviet Trade Block in Bid to Challenge EU, U.S. – bloc or ‘block’ LOL
*Push Grows for Shinseki to Go as Internal Report Cites Veteran Care Flaws- per Robert Gates: it isn’t the head of the VA…it’s the bureaucrats within it…too big to handle! Want the job??? NO!

Wednesday’s Market Summary:

Aha! you say…volume rose…yes indeed it did and note that all indices except Dow Transports (+0.7%) and Dow Utilities (+0.5%) sold off! This from yet another meaningless record high on the S&P…can’t anyone spell ‘rigged’??? From it’s high on 4/4 it is up 2.3% but since 12/31 it is up just 3.3%…get the picture?…and what a ride it has been in between (see random thoughts for more on market). While the losses yesterday were minimal…is this the ‘stuff’ of new record highs??? TB’s just sayin’…

Total NYSE Volume rose a tad to a still weak 2.92B shares…still way below average vs 2.89B s 2.4B vs 2.74B vs 2.77B vs 2.97B vs 2.64B!!! …that’s from 3.18B a week ago last Friday (remember it was an options expiration!) from an average 3.53B – on a ‘down’ day! Real trades on the floor of the NYSE slipped denoting an absence of retail and flash traders running the show. It was 636M shares about 90M below average! This vs 657M vs 554M vs 577M vs 587M! The high this month is 775M while Friday’s 554M shares is the low and the average for the month is just 651M shares. Compare to even the weak 12-month average of 722M shares!
A/D’s were minor and mixed… NYSE +1.1x vs +2.2x vs +2x vs +2x vs +2.6x vs -2.4x vs +1.8x; Nasdaq -1.6x vs +2.9x vs +2.5x vs +2.1x vs +1.5x! vs -3.1x. Breadth was similar but reversed: NYSE -1.1x vs +2.1x vs +2.3x vs +1.8x vs +2.6x vs +1.1x vs -4.1x! Nasdaq +4.3x! vs +2.5x vs +2.6x vs +2.7x vs -3.1x! vs +3x! But who cares when the volume is so low? New 52 Week Highs declined to 229 vs 336 vs 167 vs 187 vs 132 vs 111 vs 143 vs 71!!! New Lows were up slightly to a still weak 61 vs 50 vs 51 vs 62 (never short a thin market) vs 95 vs 118 vs 72 vs 180 vs 102 vs 62 vs 65 vs 214!!!
As for volatility…S&P VIX remains bullish but ‘inched’ up for a 2nd day to 11.68 +.17 with another narrow range of 11.50-11.86– note not a single ‘12’ print – for a fourth straight session!

Overnight markets:

Bonds closed strong extending the rally to three days – and gaining momentum. The 10 yr closed at 2.44% +5/8 vs 2.51%. 30 yr closed 3.29% +1-1/4 vs 3.36%! The long TIP, which hit a low of 1.00% a week ago, blew that away closing at 0.978% +1-13/16!!! Overnight little changed as we await the news…any news: 10’s 2.43% +1/8; 30’s 3.29% +1/16; and long TIP 0.974% +1/8! Cycle highs: 30 yr high was 3.97% on 12/31; the 10 yr recent high 3.03%! Long TIP was 1.64%. The (record?) low of 0.36% was set on 4/5/13.
Libor update: 0.228% 3 mos.; 0.322% 6 mos., both just off their record lows, set recently: 0.227% and 0.320% respectively! NOTE the Fed Funds rate has averaged 0.08% since 5/22/13 and is 0.07% -0.09%. Foreign bond yields little changed and mixed following yesterday’s strong performance following U.S. treasuruies: Germany 1.34% –; UK 2.65% -1; France 1.72% –; Italy 2.93% –; Spain 2.83% +2; Portugal 3.53%!!! –; Greece, which bottomed at 5.83% on 2/24 closed very strong Friday and is now 6.16% — the high on selloff was 6.75%. Highly volatile!!! Range is 5.77% to 12.57%. Japan: 0.57% -1.

Gold closed lower again at $1259.30 -$6.20 and off a session low of $1258.20 – lowest since 2/7/14!!! This, after hitting $1309.20 a week ago. It is now way below the 40/50/200 days and the psych support level of $1300 with first res at the 40 day $1295, then the 50 day $1298, and the 200 day $1300. It has fared poorly since the ‘key reversal’ on 3/17, after printing new recent high of $1392.60, highest high since 9/4/13 – which ended in an outside day and nearly a negative key reversal! Jan. 2’s low was $1181.40 – A MULTI-DECADE LOW!!! Overnight it continues to seek a floor: $1253.40 -$6.30 – session low $1251.40! A few believe in precious metals here…not TB!

Crude closed sharply lower at $102.72 -$1.39 with a low of $102.64, lowest since 5/20. Friday’s high was $104.50 – still highest since being slammed on 4/22! 3/2’s session low was $97.37, lowest since 2/4! 1/14’s low was worst since 5/2/13: $91.24! The record high of $114.83 was on 5/2/11, the low since on 10/4/11 is $74.95: $93.60 is the midpoint!!! Recent rally high and close are $110.70 and $110.53 respectively. It remains well above all three moving averages with support at the 40 day ($101.82) then the 50 day ($101.44), and 200 day $100.34. The recent range is $85.61-$112.24 since March 1, 2012. Overnight it is trading in a narrow range ($102.61-103.11),and is currently $102.81 +.08.

Global equity markets mostly lower but little changed – ex-India which is being slammed…overexuberant following election? UK +0.3% vs +0.1% vs +0.5% vs -0.2% vs +0.1%; France -0.2% vs +0.1% vs – vs +0.1% vs +0.2%; Germany -0.1% vs +0.1% vs +0.4% vs +0.2% vs +0.5%; Japan +0.1% vs +0.2% vs +0.2% vs +0.9% vs -0.2%; Hang Seng -0.3% vs +0.6% vs -0.1% vs +0.1% vs –; Korea -0.2% vs +1%! vs -0.6% vs +0.1% vs +0.1%; India -1.3%! vs – vs -0.7% vs +1.3%! vs -0.3% vs +0.1% vs +1%! vs +0.9%. U.S. Stock Index Futures little changed overnight in another very narrow range: DOW +14 (range 30); SPX +1.20 (3); NDQ +1.75 (8).
Some random thoughts:

…got sidetracked watching the Don Rickles ‘roast’ last night so did not get a chance to watch part to of the Great Wars…or the Edward Snowden interview by Brian Williams (neither did he as he was one of the ‘roasters’ of Rickles!). Will watch both today. I wrote today’s commentary to my son who recently bought some Berkshire Hathaway stock…not a problem with that but there is far too much made of Buffett’s greatness…not that he wasn’t but is he still? You decide:

This is one magazines I get online (for free being an advisor).


TB sent this article for two reasons: first, people new to investing tend to ‘overtrade’ their portfolios. This does not mean you should adjust them but contain the urge to invest in the next, new thing. This article is about ‘alpha’: that is what managers are paid to get for their clients – excess returns over the market (S&P 500 which is ‘Beta’). Betta of one means the portfolio should perform the same as the S&P; a ‘negative’ beta means your portfolio will rise when the market goes down (usually). A Beta of ZERO means there is no correlation and that is what Sharpe, cited in the article, tried to do with Wells Fargo’s trust clients.

This ties into diversification which most people…and a lot of managers don’t understand: a truly diversified portfolio – not on name or industry but on overall characteristics of each component. This leads us to Warren Buffett.

Buffett and others believe a portfolio can be fully diversified with as few as 20 stocks – if they match the above criteria…a BIG ‘if’.

Buffett’s success you should note started in the ‘golden age of stocks’ 1960’s on…when returns could be very large…that is unlikely to occur again – possibly during either of our lifetimes. Why? Markets are not priced at ‘value’ levels and stocks are now fully or overpriced. IPO’s surge the first day then retreat…and mainly hedge funds are allowed to be in the opening. The rest (aka suckers) buy in when it starts to trade…just as the hedge funds and other speculators ‘sell into the rally’.

I bought Berkshire once…and shortly after, Buffett broke his own rules and bought options shorting the dollar…he was wrong…and lost to the tune of $15 billion! Note he is the largest shareholder so it was largely his money. I then sold it for that very reason…note that he made some ‘deals’ in the middle of the financial crisis…preferred stock from Goldman, Wells, BofA, GE, and others…that too will never repeat itself. People now invest in BRK for one and only one reason: safety! That does not produce great returns.

This year BRK is up 12.8% for the past 12 months…and 7.5% year to date (note that it pays no dividends as Buffett believes he can ‘do better’ – while this is a good stock ‘letting it ride’ subjects you to more volatility…and as stated earlier: this isn’t the 60’s…note during the dotcom era it grossly underperformed the market.

Loking at the 7.5% return year to date (compare to Dow +0.3%; S&P 500 +3.3% – thanks to the last rally!), ‘puny’ Dow Utilities are up 10.2% with little volatility and followed by the ‘hot’ Dow Transports +9.1%. Sounds good, right? Well, sort of…
From 12/31 to 2/5 it dropped 7.8%, then rallied until 5/2 for a 17.2% eturn. Going back further we see it did not perform well – relatively – from 12/97 – 12/00 when it was up just 15.5% (recovering from a 5% selloff in the first two months of 1998!). BRK always does better when people are seeking safety…yet there are other ways to achieve that without the volatility…utilities and other income producing securities which smooth out the highs and lows…as shown of late by Dow Utilities returns.

I don’t believe BRK is nearly as diversified as it once was and thus over the next decade, stifled by its own size (think Pimco!), it will be viewed merely as a safe investment. Consider the acquisition of Burlington Northern which barely achieved shareholder approval. BNR had a dividend of over 7.5% with growth…keeping that dividend boosted performance yet several former executives cited how well the company would have performed without Buffett. Figures do lie and liars figure.

This is not a slam on Buffett but only to point out that he has in a way become the market…you decide.

Have a great day!




  1. Yarnman said

    TB–In last Sunday’s NYT Business section I read that Laszlo Birinyi thinks there is a lot of noise, but no real news, related to the stock market. He also predicted 1900 on the S&P by the end of May. I also read that Buffet advises his wife, if he predeceases her, to invest her inheritance in a Vanguard S&P 500 index fund, partly because of its low expenses. So both Buffet and Birinyi join the noisemakers, like MacBeth–“sound and fury, signifying nothing.”–Yarnman

    • traderbill said

      I too saw Biryini’s comments and a couple of others. Buffett is also leaving most of his estate to the Gates Foundation…BUT he says he can do better! What part of philanthropy doesn’t this man with an inflated ego get? His good days are behind him. Remember his saying he wouldn’t invest in anything he didn’t understand? Well, back in 2004 this guru decided the dollar was going to crash…so he put $15 billion of BRK money in shorting the dollar through options…he lost BUT to his credit at the annual meeting he said that every other division made its targets… also note that he is the largest shareholder (39%). Still, I sold the stock…
      Monday will discuss my favorite meglomaniac: Larry Ellison – this man has all the attributes of a Stalin, Hitler, or Mussolini…or Togo!

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