Turmoil in Town
Research for Online Investors

by John Dalt

1/20/10

The market sold the news today.  A big advance yesterday was lead by health care stocks in anticipation that the health care bill would be in trouble if Scott Brown won the Senate election in Massachusetts to replace Ted Kennedy.  The election is over, and now the political landscape is blurry.  There is turmoil in Washington and Wall Street.

There are theories of policy reassessment in the White House, resignation of Treasury Sec. Tim Geithner, and possibly threaten Ben Bernanke who is awaiting confirmation to a new term as head of the Federal Reserve.

These uncertainties along with China’s curb on lending caused traders to hold back. China’s chief banking regulator limited lending at some banks after $1.4 trillion in new loans in 2009. Greece is still facing serious budget deficits after cutting spending.  Their budget deficit reached 12.7% of Gross Domestic Product in 2009  This is three times the level allowed by the European Union.

The market volume is low, and subject to wild fluctuations.  Berkshire Hathaway had a special meeting today to approve the 50-to-1 stock split of the “B” shares.  This approval was needed for the acquisition of BNI, as part of the purchase is allowed in stock.  BRK/B may also be included in the S&P 500 now with the stock priced in the $70 range.

We told our long-term portfolio subscribers to expect a pop in the price after the stock split, as it would be more affordable to many investors.  If BRK/B is added to an index it will certainly move the stock higher.  We consider BRK a value at the current price.  BRK/A is trading at $104,650; a 40% discount to its price in Sept. 2008  Has anything changed since 2008?  Of course you say.  I would say a lot has changed at BRK too, like billions in loans at 15% and warrants on Goldman Saks to buy at a fraction of the market price today.  Sometimes I wonder about starting a long-term service for $20 per year with one recommendation, BRK.  If you don’t own it, you should and you don’t even have to pay me twenty bucks!

We went until the last hour of trading today, before we had any green on our screen, except BRK/B.  Buyer’s started picking up bargains just before noon.  The dollar moved higher on a strong push, with oil and precious metals selling off.

Crude oil closed lower on anticipation of a build in inventories to be reported tomorrow by the Energy Information Administration.  The American Petroleum Institute puts out information the day before the EIA report that is considered reliable by traders.  It does miss occasionally, but generally is spot on.

I searched the API website for some information on storage, but came across two reports that caused more concern than last week’s storage.  First that demand is increasing, on a small incremental basis, but it is increasing.  Second, that the total number of oil and gas wells drilled in 2009 was 39% less than in 2008  This includes dry holes, a sad occurrence if you are a partner.  The silver lining is that activity picked up in the last six months of the year.

The government is standing still, while another energy crisis is building.  Actually, it is the same energy crisis just a different chapter.  Alternative energy is not going to replace gasoline for transportation.  “Drill baby drill” seems like an echo from the distant past.  It won’t be much longer until it will be the scream heard at every mall and service station.

It is hard to keep the public’s attention when the problem is not hitting us in the wallet every day, and even harder to keep Washington’s attention if an interest group or powerful political figure does not care to push for a solution.

Off-shore drilling has been delayed by powerful forces, always falling back on the statement that “It will take five to ten years to get the oil flowing anyway.”  Like it would not do any good to plan and drill now.  The obstructions get a little old when the people using these arguments are repeating them five to ten years after they first uttered them.  After all, a squirrel knows enough to store nuts before winter.

To the mailbag:
“I personally appreciate your political insights.  They are a necessary component to making appropriate investment decisions.”---paid up subscriber T.D.

John’s response:  Thanks, T.D. I try to keep it in check; my wife says there is too much.  I believe, like you, that it is essential to understand what affects our companies.  Honestly, I am more concerned about our country than my investments, because what is it worth to make money but live under tyranny?

A final note:  Thanks to all of our readers who are now complimentary subscribers to the Long-Term Portfolio.  We have helped the truly needy, in a time of great need.

“The burden of government is not measured by how much it taxes, but by how much it spends.” ---Milton Friedman

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

MarketToday Home Page

Back to Top