What Happens in Omaha
Research for Online Investors

by John Dalt

4/29/11

I woke up in Omaha next to the Thomson-Reuter’s production truck.  I supplied coffee and restroom facilities to the crew.  Omaha is busy getting ready for the Berkshire-Hathaway (BRK) meeting.  CNBC has the inside of the Qwest Center; other news organizations are in the parking lot.  Everyone is looking for a scoop or an angle on the weekend.

My early morning coffee buddies from Thomson-Reuters

Becky Quick with CNBC asked Buffet about the Sokol controversy last night on his way into a bridge game.  He demured until the shareholder meeting.  We aren’t looking for any scoops or angles.  The last shareholder meeting I attended was years ago.  I bought a large amount of shares (for me) in a bank that was being shopped for sale.  I asked the President of the bank why they had signed ‘golden parachutes’ with all the top executives.  You would have thought I was a leper at a beauty contest.

Needless to say, the executives took a lot of cream off the sale.  Shareholders got the leftovers.  If those executives were so good, if it was so important to the bank to keep them?  (That is how the president answered my question.)  Why was the bank an under-performer and for sale?

All the economic reports this morning came in as expected. The market wants to move higher since we pushed through resistance.  Reuter’s interprets the reports that Consumer spending is rising, but because of higher prices.  Consumer spending rose 0.6% in March, but inflation accounted for 0.4% of that.  Remember, the highest inflation is in food and fuel.  Since these are ‘necessities’ they crowd out other elective purchases.  The Labor Department reported wages grew at a 0.4% rate in the first quarter.

Caterpillar reported a big earnings surprise of $1.84 per share, compared to expectations of $1.31.  The company also raised their forecast for the balance of the year.  Reuter’s reports than the company added 20,813 employees in the last year, one-third of them in the U.S.

I am meeting long-term portfolio subscriber D.M. (from California) later.  The market is up smartly this morning.  All appears to be good on Wall Street.  Boy, that is scary!

The price of crude oil continues to trend higher because of Middle East tensions and the devaluing of the dollar. Over the past eight months, the cost of one barrel of crude oil has increased by over $40. As oil prices increase, so does the cost of gasoline. Since the financial crisis lows at the end of 2008, the average US price for a gallon of unleaded has risen $2.18 per gallon. The only time when gasoline prices were higher than today was during a brief three-month period in mid-2007, just prior to the credit crisis.

Chart courtesy of www.chartoftheday.com

The mailbag:
Every cost of a business (such as XOM) is paid for by customers, including taxes  The provision of deductions for tax purposes is a fanciful accounting exercise (except as it relates to the business' competitors and the tax accountants and lawyers).  The customers pay all the taxes as well as the costs of lobbying for the exceptions to corporate taxes.—paid up subscriber M.T.

John’s reply:  You are correct.  Customers pay for all the company's costs to produce whatever product they are selling, including all the taxes they have to pay.  Corporate taxes lead to higher prices for everything we buy.  But, always remember, Obama said he wouldn’t raise taxes on anyone that made less than $250,000

In Omaha, make sure you visit the SAC museum.  They have one of only two B-36’s left, on display.—subscriber C.F.

John’s reply:  Count on it, if at all possible.

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.

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