Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Benkea who wrote (35047)	12/11/1999 1:16:00 PM
From: Les H	Respond to of 99985

Buffett won't beat the market this year By David Pauly, Bloomberg NEW YORK -- In his annual reports to Berkshire Hathaway shareholders, Chairman Warren Buffett shows a table that pits his investment record against the Standard & Poor's 500 Index, the benchmark for most money managers. This year, the reading will look like an aberration. For the first time since 1980, Buffett, widely cited as one of the world's shrewdest investors, won't beat the market. Buffett compares the annual percentage increases in Berkshire Hathaway's book value -- and there have been nothing but gains starting with 1965 -- with gains and losses in the S&P 500. Berkshire's book value, or net worth, includes its earnings over the years, the market value of its stocks and bonds and adjustments for acquisitions. At the end of this year, the holding company's book value will be $37,900 a share, gaining only imperceptibly from the year-earlier figure of $37,800 a share, according to an estimate by PaineWebber analyst Alice Schroeder. Schroeder, who made the estimate Nov. 15, says the final number will depend on what happens to the stocks Buffett owns between now and year-end. So far in 1999, the return on the 500 stocks in the S&P index, including reinvestment of dividends, is 16%. No way for Buffett to catch up. In his last bad year, Berkshire's gain in book value trailed the S&P's gain by 13 percentage points. Based on Schroeder's estimate, Berkshire's record has improved in recent weeks. On Sept. 30, Berkshire's book value was $36,385 a share, less than at the end of 1998. A loss for the full year would be unthinkable in Omaha, Nebraska, Buffett's base. The per-share figure is based on what Berkshire calls 'Class A equivalents.' The company also has Class B shares, worth 1/30th of a Class A share. Paper losses Buffett has had a bad year in bonds, as have most investors, because higher interest rates ate into the value of fixed-income securities. Berkshire owned $31.9 billion worth of bonds on Sept. 30 on which it had $619 million in unrealized losses, says analyst Schroeder. Berkshire's bond investments have increased in recent years through the acquisition of General Re and the shares in Geico it didn't previously own. Insurance companies like these two are big bond investors. It's also been a bad year for the stocks Buffett owns, though the overall stock market continues to forge ahead. Berkshire holds stakes of 8% in Coca-Cola, 8.5% in Gillette and 9% in Freddie Mac, which buys mortgages and packages them as asset-backed securities. All have declined so far in 1999, as have Walt Disney shares, another big Berkshire investment. Buffett's Coca-Cola holding has dropped $1.4 billion this year, as of yesterday's close. Freddie Mac shares have declined 26%. Those losses were offset in part by a year-to-date gain of about $2.8 billion in American Express shares. As of Sept. 30, Berkshire's unrealized stock gains had declined to $23.9 billion from $28.9 billion at the end of 1998, Schroeder says. Berkshire's stocks on that date had a total value of $34.8 billion, the analyst says. Berkshire a buy? Berkshire adjusts its stock and bond holdings to reflect current market value at the end of each quarter. For the first nine months of 1999, Berkshire showed declines in both earnings from operations -- competition kept insurance premiums down - and realized investment gains. Net income fell to $1.5 billion, or $1,009 share, from $2.3 billion, or $1,822 a share in the same 1998 period. Berkshire Hathaway's own shares this year have dropped to 55,000 from 70,000 at the end of 1998. Class B shares fell 16 today to $1,784, down from $2,350 at the end of last year. As it has been with many other sensible investors, Buffett's returns have been held back in recent years because he refused to buy stocks in computer-related companies, which he says he doesn't understand. Can you imagine the sage of Omaha owning Yahoo? Buffett's investing record remains top-drawer. Few mutual fund managers beat the S&P 500 in any year; Buffett did it 18 years in a row. The 69-year-old personifies the long-term investor impervious to periodic upsets. Still, it will be interesting to see what Buffett has to say to his shareholders when they meet next spring.

To: Benkea who wrote (35047)	12/11/1999 1:23:00 PM
From: Les H	Respond to of 99985

Bond Market Braces for Worst By Beth Williams, Bloomberg News NEW YORK -- Investors in the $3.2 trillion Treasury market are bracing for bad news, even though they've gotten their share of good tidings lately. A report Friday showing producer prices were unchanged in November excluding food and energy -- a sign of tame inflation that would typically spark a frenzy of buying -- prompted only moderate gains in government debt. 'The market is fearful that the worst is yet to come and an occasional good number like this has a muted impact,' said Greg Habeeb, who manages about $2 billion of bonds at the Calvert Group in Bethesda, Md. 'Things could change.' U.S. 30-year bonds climbed 66 cents, or $6.56 per $1,000 face amount, to $99.47 after Friday's report, which showed the producer price index rose 0.2% overall. Yields fell 5 basis points to 6.16%. By contrast, a similar report in August sparked a rally that sent bonds up almost 1.25 points. It was the same story earlier in the month, when figures showing subdued wage gains last month and the biggest gains in productivity in seven years in the third-quarter, failed to produce more than one-day spurts. It's not enough for bond investors to know that inflation and the ingredients that typically goad it along -- such as rising job costs -- are behaving themselves now, even with the economy's strength. They want assurance that inflation, which eats into the value of a bond's fixed payments, isn't poised to spiral higher before turning bullish on Treasuries. Caution reigns With the economy poised to break a record run, the jobless rate at a 30-year low, and surging U.S. stocks fueling consumer spending, that assurance is hard to come by. Investors probably won't get much comfort from Tuesday's consumer price report, either, even if it shows inflation isn't quickening too much. Already, the Federal Reserve raised its target for overnight lending between banks three times since June in an effort to curb growth before it results in higher prices on goods and services. Fed officials have hinted they may be prepared to raise interest rates again on signs of further tightness in the jobs market, which might lead to higher wages that could spur inflation. 'I would err on the side of caution,' said Kirk Hartman, who oversees $100 billion as chief investment officer for fixed income at Bank of America Investment Management in Los Angeles. Hartman said he favors corporate, mortgage and other non-government securities that offer higher yields than Treasuries. This strategy helps boost performance at times when government yields aren't moving much, or on the rise -- like now. After climbing more than a percentage point since the start of the year, 30-year yields have been stuck in a range of about 6% to 6.40% the past three months. Losses for the year are at 9.3%, taking reinvested interest into account. Fed funds futures -- the futures market's closest match to the central bank's target -- indicate investors put the odds of a quarter-point rate increase at about 70% for the Fed's Feb. 2 policy meeting, based on an implied yield of 5.66% on the February contract. By April, a rate increase is fully priced in. Inflation 'building blocks' 'I don't think the Fed will wait to see the whites in inflation's eyes before moving next,' said Todd Finkelstein, who helps handle $425 million at Advest Group, in Boston. 'There's no real pressure on wages but the building blocks continue to be put in place for a pick-up in inflation.' Finkelstein said Treasuries could get a lift in the weeks ahead, keeping 30-year yields near 6.15%, as traders seek safer investments to avoid problems stemming from possible computer breakdowns at the turn of the year. Those concerns will also likely keep the Fed from raising rates when officials meet Dec. 21, analysts said. That said, Finkelstein sees any gains in the market as only temporary, which is why he has set up his portfolio so it will perform better than his benchmark if rates rise. He expects at least one more Fed rate increase next year and 30-year yields to rise as high as 6.70%. Rate rise series? Some investors fret the Fed's inaction this month, while understandable, may further increase the chances for quickening inflation and the need for even more rate increases in the future. While not registering the double-digit gains of 20 years ago, inflation is still on the rise this year. Next week's report will probably show consumer prices rose 2.4% in the 12 months ended in November, compared to 1.6% for all of 1998. That would put 30-year yields at 3.76% after inflation. For so-called 'real yields' to match the 4% average of the past five years, 30-year yields would have to be at 6.40%. Yields could climb even higher should investors anticipate inflation will accelerate as the economy steams along, investors said. 'We're still cautious,' said Jim Snyder, who invests $3.8 billion in bonds for American Express Asset Management in Minneapolis. 'The risks are still toward rising yields based on the strength of the economy.'