Wednesday, May 19, 2010

BAGAKOAA May 19,2010 Naked shorts and wealthy old men


May 19,2010 Naked shorts and wealthy old men

OK, got your attention now don’t I. Monday the 13-F of Warren Buffet, actually his company Berkshire Hathaways was released. You remember Monday, the Dow was at 10,600 and life was good. Anyway a 13-F is a form filed with the Securities Exchange Commission when an investment manager trades more than 100 million dollars in stocks, I believe in a quarter since it is a quarterly filing. So far I have not had to file one of those two, three, four, (waiting for the laughter to stop).

I like looking at the 13-F to see how many he got right last quarter. I know he reads my blog so its also nice to let him know we are thinking of him. But I digress.

Before we get into details, let talk about how big his portfolio is. As of March 31, 2010 his BRK holdings were about 51,203,000,000. That’s right, 51 Billion 203 million plus. I’d take the plus, but I am not jealous.

His top holding is KO, good old coke a cola. He owns 200,000,000 shares worth about 11 billion. He started buying Coke after the crash of 1987. By mid 1988 he had 1 billion worth had has had it ever since. Why did he buy it? He liked the product and it was undervalued.

His second largest holding is Wells Fargo Bank. Buffet started buying this during the money crisis of 1989-1990. He liked the management team and it was undervalued. Oh he has about 10 billion of WFC. He also has about 6.2 billion of American Express which he acquired at roughly the same time.

Buffet has about 5 billion of Proctor and Gamble, but note that he sold off about 9% of his holding the first quarter. That is called taking profits and apparently he moved some of the money into the bond market. Watch this boys and girls as if this is what the Oracle of Omaha is doing after a steady buying spree for two plus years it might be a tell of what all the big boys are doing. And to round out his top 5, he has about 3 billion in Kraft. This too was reduced over the last three months, but again it seems to be profit taking.

Knowing what he holds is one thing but watching the changes can be interesting as a guide to what he thinks is going on in the industry he plays. He is currently heavy in Financials and Consumer stocks with about 40 percent of each. He has much smaller holdings in consumer services, gas and oil, and industrials.

He added to his position on RSG, Republic Services, a provider of domestic non-hazardous waste. I did a blog about WM, Waste Management a few weeks ago and mentioned that the economic comeback will generate more trash. Buffet obviously thinks RSG is a better play than WM. Its fundamentals are nice and they throw a nice dividend. (2.6%+)

He also added IRM, Iron Mountain, a data and document management services company concern to his holdings. He has about a 200 million dollar position in Iron Mountain. The prices paid seemed a bit rich for Buffet’s usual bottom feeding tactics, but he has done a little better than I in the market. In addition there was a purchase of about 130 million dollars of Becton, Dickinson and Co, BDX a medical research supply and device manufacturer. It had a respectable 14% PE so it was apparently fairly valued.

He did take some profits and pared back some stocks like COP, COST, GCI, JNJ, KFT, KMX, MCO, MTB, and PG. And completely closed out of his positions in STI, TRV, UNH, and WLP.

Now before you get all excited and say, “WOW Brian knows so much.” Ok I know you would not say that but what they hey. Most of this info was in the WSJ and Barron’s this week. BUT, Behold the Underlying Truth, you can go to a website called edgar online that is the online search engine for SEC filings and you can get all the information you ever need on publicly held companies. I have it as a favorite in my browser bar, but I have no life.

I have been watching all the oil clean up stocks and still can’t pull the trigger on any of them. I mentioned CLH, NLC, NR, HOS, and SPN and nothing is jumping off the pages to get me to bite. If anyone found a sleeper in this mess, let me know what it is.

And inclosing because its getting late, let’s talk about naked shorts. Sounds like an oxymoron. Part of the volatility today was in response to yesterday’s decision by Germany to change the way the big monies guys play the game over there. They are temporarily banning naked short trades of CDS on Euro area government bonds. Now a CDS, credit default swap is a contract between a buyer and seller of a bond based upon a series of payments to one parties advantage. The underlying instrument is usually a bond or a loan. A naked short is when they write this contract in the nude. Ok who was paying attention? No a naked short on a CD is where these contracts are written, but neither party actually owns the underlying loan or bond. It is very very speculative and like gambling on a roulette wheel and never seeing a ball drop.

Anyway that drove the market down today along with a scary drop in mortgage applications. Could it be the impact of no more ORP money? (Obama Reid and Pelosi) The banks kinda did ok as the big scary news about banking legislation might not be as scary as once thought. And yes we have no inflation. The CPI was the lowest it has been for 44 years.  However if the market was not jumpy enough the terms stagflation and deflationary spiral was mentioned in a lot of the finance pundit factories.

In essence a lackluster day again.

Salve Lucrum


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