Archive for February, 2009

Berkshire’s Warren Buffett humbled, says we are in for more tough times ahead

Posted in Investment on February 28, 2009 by nedgrace

He does state optimistically that “America’s Best Days lie Ahead” and that “we have faced far worse travails in the past”. Another classic pearl of Buffett wisdom “When investing, pessimism is your friend, euphoria the enemy.”

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2008 Berkshire Letter 

You can read the entire letter by clicking the link above.

Here are some of the highlights by the Editors of The  Wall Street Journal:

Warren Buffett’s Berkshire Hathaway on Saturday released its annual letter, known well for its folksy writing and wit. Here are some of the highlights:

On His Investments

During 2008 I did some dumb things in investments. I made at least one major mistake of commission and several lesser ones that also hurt. … Furthermore, I made some errors of omission, sucking my thumb when new facts came in that should have caused me to re-examine my thinking and promptly take action.

* * *

By year end, investors of all stripes were bloodied and confused, much as if they were small birds that had strayed into a badminton game.

* * *

We’re certain, for example, that the economy will be in shambles throughout 2009 — and, for that matter, probably well beyond — but that conclusion does not tell us whether the stock market will rise or fall.

* * *

On the Economy

This led to a dysfunctional credit market that in important respects soon turned non-functional. The watchword throughout the country became the creed I saw on restaurant walls when I was young: “In God we trust; all others pay cash.”

* * *

In poker terms, the Treasury and the Fed have gone ‘all in.’ Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel. These once-unthinkable dosages will almost certainly bring on unwelcome aftereffects.

* * *

Whatever the downsides may be, strong and immediate action by government was essential last year if the financial system was to avoid a total breakdown. Had that occurred, the consequences for every area of our economy would have been cataclysmic. Like it or not, the inhabitants of Wall Street, Main Street and the various Side Streets of America were all in the same boat.

* * *

Amid this bad news, however, never forget that our country has faced far worse travails in the past. … America has had no shortage of challenges.

* * *

Local governments are going to face far tougher fiscal problems in the future than they have to date. The pension liabilities I talked about in last year’s report will be a huge contributor to these woes. Many cities and states were surely horrified when they inspected the status of their funding at yearend 2008. The gap between assets and a realistic actuarial valuation of present liabilities is simply staggering.

* * *

On Derivatives

Improved “transparency” — a favorite remedy of politicians, commentators and financial regulators for averting future train wrecks — won’t cure the problems that derivatives pose. I know of no reporting mechanism that would come close to describing and measuring the risks in a huge and complex portfolio of derivatives. Auditors can’t audit these contracts, and regulators can’t regulate them. When I read the pages of “disclosure” in 10-Ks of companies that are entangled with these instruments, all I end up knowing is that I don’t know what is going on in their portfolios (and then I reach for some aspirin).

* * *

On Housing

The present housing debacle should teach home buyers, lenders, brokers and government some simple lessons that will ensure stability in the future. Home purchases should involve an honest-to-God down payment of at least 10% and monthly payments that can be comfortably handled by the borrower’s income. That income should be carefully verified.

* * *

Putting people into homes, though a desirable goal, shouldn’t be our country’s primary objective. Keeping them in their homes should be the ambition.

* * *

Last year was a terrible year for home sales, and 2009 looks no better. We will continue, however, to acquire quality brokerage operations when they are available at sensible prices.

* * *

On Risk

When the financial history of this decade is written, it will surely speak of the Internet bubble of the late 1990s and the housing bubble of the early 2000s. But the U.S. Treasury bond bubble of late 2008 may be regarded as almost equally extraordinary.

* * *

On Berkshire in 2008

This means that our $58.5 billion of insurance “float” — money that doesn’t belong to us but that we hold and invest for our own benefit — cost us less than zero. In fact, we were paid $2.8 billion to hold our float during 2008. Charlie and I find this enjoyable.

* * *

Berkshire is always a buyer of both businesses and securities, and the disarray in markets gave us a tailwind in our purchases. When investing, pessimism is your friend, euphoria the enemy.

* * *

Additionally, the market value of the bonds and stocks that we continue to hold suffered a significant decline along with the general market. This does not bother Charlie and me. Indeed, we enjoy such price declines if we have funds available to increase our positions.

* * *

Similarly, when we purchased PacifiCorp in 2006, we moved aggressively to expand wind generation. Wind capacity was then 33 megawatts. It’s now 794, with more coming. (Arriving at PacifiCorp, we found “wind” of a different sort: The company had 98 committees that met frequently. Now there are 28.)

* * *

Some years back our competitors were known as “leveraged-buyout operators.” But LBO became a bad name. So in Orwellian fashion, the buyout firms decided to change their moniker. What they did not change, though, were the essential ingredients of their previous operations, including their cherished fee structures and love of leverage. Their new label became “private equity” …

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The Refreshing View of Milton Friedman on Capitalism

Posted in Investment, Personal Life on February 27, 2009 by nedgrace

Robert Prechter on CNBC says likely we’ll see two more years of Bear Market

Posted in Investment on February 27, 2009 by nedgrace

Prechter says his call to sell was 800 S&P points ago. He has taken off his shorts now, but feels that we may see two more years of a bear market. Prices are not cheap enough yet. He is a bull on the dollar – says now a dollar will buy twice the equities it did a year ago, twice the real estate it did in 2006, and twice the gasoline it did a year ago.

Incredible Chart Comparison of Dow Industrials 1928-1938 to Nasdaq 100 1999-2009

Posted in Investment on February 27, 2009 by nedgrace

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Peter Ferber produces another awesome painting – Upswept Reflections

Posted in Personal Life on February 26, 2009 by nedgrace

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“Upswept Reflections” by Peter Ferber

“This image came from work on a commission of this property in Winter Harbor.  The commissioned piece included everything: house, boats, boathouse, etc., as is often the case.  But what interested me were the little vignettes I found here and there.  I rarely get to focus in on the gorgeous details of these boats when I’m putting several in one painting, so I relished the opportunity here to work with the marvelous reflections in the polished surfaces of this 1929 Chris-Craft “upswept” (so named for the way the decks curve upward).  It’s always amazing to analyze all the shapes in a reflection, render those abstract forms, then step back and see the whole thing come together, looking shiny!  I worked quickly, while the soaked paper was damp allowing the paint to flow in all the complex shapes and be manipulated before drying completely, adding the the smooth feel of the surfaces.  Just this beautiful stern quarter wasn’t enough, compositionally, so I brought in another Winter Harbor resident, the laker, to pull it together and add a secondary focal point.  I also love the translucent effect in the flag.”  ~ Peter Ferber

About Peter Ferber:

In a world that is increasingly complex, impersonal, and high-tech,Peter Ferber finds himself intrigued with the simple, timeless and more comprehensible things that often go unnoticed. Having grown up spending all his summers in Wolfeboro, Peter is drawn to the rural New Hampshire landscape as inspiration for his paintings–the sparkling serenity in the play of evening light across the lake, the simple purity of a white clapboard barn in the snow, the warm patina of a weathered boathouse are refreshing to his heart.

He has been working as a full-time professional artist since graduating from Principia College in 1976, and approaches each new piece with a desire to try something new. He developed an appreciation for strong design and composition at college in daily painting and drawing excursions, including a ten week painting trip to Europe. Attention to detail and precise control of the medium was honed through years of work producing architectural renderings for historic restoration projects. He paints in watercolors, oils, and most recently in acrylics.

Peter has done the poster for the New England Chapter of the Antique and Classic Boat Society for the past nine years. His illustrations have appeared in national magazines as well as in books. He has exhibited in many shows throughout New England and the Midwest, and has had more than 40 reproductions made of his work.

Beyond the appeal of the scenes themselves, he hopes that his work will stir an awareness of the value of preserving the character and history of this rich landscape we all enjoy.

Peter does two shows a year at The Art Place in Wolfeboro, NH. The line to get in typically begins at about 5AM for a 9:30AM opening. Needless to say, Peter is a great talent, who is really appreciated by his fans.

Unboxing of Amazon’s Kindle 2.0

Posted in Investment, Personal Life on February 26, 2009 by nedgrace

Holly and I both received our Kindle 2.0’s yesterday and are really impressed! David Pogue of the NY Times and Walt Mossberg of the Wall Street Journal certainly echo our sentiments in their reviews in their respective papers today.

You can order your Kindle 2.0 from Amazon by clicking here

Kindle 2.0 Review – Walt Mossberg – Wall Street Journal

Posted in Investment, Personal Life on February 26, 2009 by nedgrace

Amazon.com has fixed the worst design flaws in the Kindle, its popular electronic-book reader, while maintaining the excellent book-buying experience that made the first Kindle model tolerable despite those problems.

This week, the company released the Kindle 2, a new version that is much thinner, a tad lighter and a bit taller. It has much more built-in memory, better navigation controls and a slightly improved screen. I’ve been testing the Kindle 2 for a few weeks and consider it a vast improvement over the first Kindle, released in late 2007, which was clumsy and annoying to use. Overall, I found the Kindle 2 to be a well-designed, satisfying piece of hardware.

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The new model carries the same relatively high $359 price tag as its predecessor, but it offers faster page rendering and 25% better battery life. The catalog of books available on both Kindles has now swelled from about 90,000 in 2007 to over 230,000 today, and titles still typically cost around $10. You can still subscribe to periodicals and blogs, and there is still a crude Web browser built in — but this gadget is mainly for reading books.

Like its predecessor, the new Kindle has a built-in cellular wireless modem that allows you to download books or update periodicals on the fly, without using a computer. As before, there is no monthly fee for this wireless service.

Most important, Amazon has remedied the most irritating flaws of the original model. It’s no longer easy to accidentally turn pages, because the page-turning buttons have been redesigned. You no longer have to reach around to the back of the device to turn it on or off. You no longer scroll through menus and text with an odd little wheel whose progress was only visible in a thermometer-like strip separate from the main window. And the book-like cover no longer falls off.

But the improvements in this dedicated e-book reader, while admirable, may pale beside Amazon’s next move. Amazon says it is working to make the Kindle e-book catalog available on other mobile devices, such as smart phones, that people already own. The online merchant, which is so secretive it makes Steve Jobs seem like Joe Biden, isn’t saying which devices will get the Kindle service or when. I would bet it will be sooner rather than later.

This makes perfect sense. While the Kindle project has often been compared with Apple’s iPod, because both are hardware devices seamlessly connected to online-content stores, there is a fundamental difference. Apple offers content to sell hardware. Amazon offers the Kindle to sell content.

If, say, this electronic content were available not only on the Kindle reader, but via Kindle software apps on Apple’s iPhone or the BlackBerry, the e-book market could explode.

Meanwhile, Kindle’s design has gone from chunky and clunky to smooth and sleek. The power switch is now easily reachable on top of the device, and the all-important buttons for paging forward and backward through a book are now smaller — and work by pushing them firmly inward toward the screen instead of outward toward the edge of the device. This means they can no longer be easily activated by stray finger movements.

The weird thermometer system has been replaced by a little joystick that moves an on-screen cursor. The Home button is now large, and has been moved off the keyboard, which has been reduced in size, but is still quite usable.

The screen is the same 6-inch, high-resolution E-Ink display, which has a comforting contrast ratio for reading and uses battery power only when you turn the page. But, while it still can’t display color and still can’t be read in the dark, its gray-shade graphics are much more detailed.

The battery is now sealed in, but it is larger. Amazon claims you can read for four or five days with the wireless turned on, or up to two weeks with it turned off. In my tests, those claims proved true. I took the Kindle on a trip for a week with the wireless turned off and the battery indicator barely budged.

Memory has been greatly expanded, so you can store 1,500 books, up from 200, though you can no longer add extra memory.

There are also a few cool new features. The Kindle 2 looks up words in the dictionary automatically, as soon as you move the cursor to them. It can optionally read books aloud in a computer voice that’s surprisingly decent. And, if the wireless function is on, the Kindle service will remember the last page you read in a book and synchronize a second Kindle to that same place in the book.

There are some drawbacks. You still can’t organize your books into groups of your choice. Amazon now charges $29 for the cover, which was formerly free. And the Kindle still doesn’t work with some of the open e-book formats that other devices support.

But for serious book readers who are tired of toting around stacks of books and periodicals, the new Kindle is finally a pleasure to use.

You can order yours now by clicking here

Find all of Walt Mossberg’s columns and videos online, free, at the All Things Digital Web site,walt.allthingsd.com. Email him at mossberg@wsj.com.

Printed in The Wall Street Journal, page D1