US stocks still reasonable but bonds awful: Warren Buffett

AP May 7, 2013, 01.03AM IST
From http://articles.economictimes.indiatimes.com/

OMAHA(NEBRASKA): Investor Warren Buffett said even though the stock market is soaring, prices appear reasonable, and stocks would be a better investment than bonds for most people.

Buffett conducted interviews Monday on CNBC and the Fox Business Network cable channels after a weekend full of events in Omaha for Berkshire Hathaway shareholders.

``Bonds are a terrible investment right now,'' Buffett said.

Buffett said bond prices are artificially inflated because the Federal Reserve continues to buy $85 billion of bonds a month, and owners of long-term bonds may see big losses when interest rates eventually rise. He said inflation is also likely when the Fed stops buying bonds.

He said the average investor should keep enough cash to be comfortable and invest the rest in equities.

``Stocks are reasonably priced now. They were very cheap a few years ago,'' Buffett said on CNBC.

But Buffett said most investors pay too much attention when the stock market reaches record highs. He said average investors should pay more attention when stocks hit records in falling prices because that's a sign they are getting cheaper.

The Federal Reserve's efforts to keep interest rates low have helped the stock market soar, Buffett said, but the improving economy has also played a role.

Buffett said he remains a fan of Fed Chairman Ben Bernanke. He also reiterated his support of JPMorgan Chase Chairman and CEO Jamie Dimon. He said that bank, which he has invested in for his personal portfolio, has the right CEO.

Buffett said the current low interest rates continue to make long-term borrowing like 30-year mortgages attractive, but he expects significant inflation eventually.

``Anybody who's borrowing money should borrow out for a long period of time. And if you ever want to get a mortgage, today is the day to get a mortgage,'' Buffett said on the Fox Business Network.

Buffett said he's not sure what will happen when rates rise.

``It won't go on forever and it's going to be very interesting when the first signal comes out that they're going to advance,'' he said.

Buffett, who heads the Berkshire Hathaway Inc. conglomerate, was also asked about aspects of that company, which owns more than 80 companies and holds major investments in Wells Fargo, IBM, Coca-Cola and other iconic companies.

He defended the way the pending $23.3 billion takeover of ketchup-maker H.J. Heinz Co. was structured.

He said he expects Berkshire to own a stake in Heinz forever, and he doesn't see a problem in taking a partner _ the Brazilian investment firm 3G Capital _ in the deal.

Buffett said on CNBC he doesn't consider 3G a traditional private equity firm because it is investing a significant amount of its own money and it runs businesses. Some people had questioned whether the deal that will give Berkshire a 50 per cent stake in Heinz represented a change in investment style for Buffett's conglomerate.

Generally Berkshire buys entire companies outright and allows them to continue operating largely unchanged.

Buffett said he hopes Berkshire's stake in Heinz will grow over time.

On another topic, he said traffic is picking up at Berkshire's BNSF railroad as the economy improves. He said the railroad will likely deliver record earnings this year, but will probably still haul fewer carloads than it did before the recession.

``It's been a terrific acquisition for Berkshire,'' Buffett said.

BNSF contributed $798 million to Berkshire's $4.89 billion first quarter profit the company reported on Friday. The Omaha-based company's overall profit soared 51 per cent over the previous year's $3.25 billion net income.

Berkshire's newest board member, Meryl Witmer, joined Buffett for part of the Fox Business interview. Witmer, 51, is an investment manager with Eagle Capital Partners.

Witmer said she has been impressed with all the Berkshire managers she has met so far.

``They're smart and they're happy and they love being a part of Berkshire,'' said Witmer, who is the third woman on Berkshire's board.

Buffett said Witmer would join the discussion on succession planning at Berkshire when she attended her first board meeting on Monday. He says succession is always the top subject the board discusses, but he said the board is unanimous about who should take over as CEO if he died tonight. That person has not been disclosed publicly.

AP May 7, 2013, 01.03AM IST
From http://articles.economictimes.indiatimes.com/

Buffett says economy on mend, bonds 'terrible' investment

By Jonathan Stempel
Mon May 6, 2013 11:00am EDT
From http://www.reuters.com/article/


(Reuters) - Warren Buffett said the U.S. economy is gradually improving, but low interest rates have made bonds "terrible investments" while stocks remain "reasonably priced."

Speaking on CNBC television on Monday, the chairman and chief executive of Berkshire Hathaway Inc (BRKa.N) (BRKb.N) said the economy is benefiting from an upturn in areas that had not previously performed well, particularly homebuilding.

He also said the rebound is helping create increased traffic for Berkshire's private plane unit NetJets, and could result in a record profit this year for Berkshire's railroad unit Burlington Northern Santa Fe.

"The economy is moving forward, but at a slow pace," he said. "Demand has come back, but slowly."

Buffett spoke on CNBC after Berkshire's annual shareholders meeting over the weekend in Omaha, Nebraska.

BONDS AND BERNANKE

The world's fourth-richest person said low benchmark interest rates, including overnight rates that Federal Reserve Chairman Ben Bernanke has kept at effectively zero since late 2008, can help stimulate demand.

But many investors have also been drawn to bonds because their prices rise as rates fall, and Buffett said they could get their comeuppance when that process reverses.

"Bonds, they're terrible investments now," Buffett said. "That will change at some point, and when it changes, people could lose a lot of money if they're in long-term bonds."

He said stocks, in contrast, are "reasonably priced," though he continues to shy away from sectors such as media, where he cannot reasonably predict who will thrive in the long run.

"It's a lot easier for me to predict that ketchup will be doing well or Coca-Cola will be doing well in 10 years," Buffett said, referring to Berkshire's pending takeover with Brazilian investment firm 3G Capital of H.J. Heinz Co (HNZ.N), and Berkshire's large investment in Coca-Cola Co (KO.N) stock.

Berkshire ended March with $95.9 billion of equities and $31.4 billion of fixed-income securities on its balance sheet.

At the annual meeting, Buffett and Berkshire Vice Chairman Charlie Munger agreed that the economic stimulus provided by Washington during the 2008 financial crisis was needed to address what Buffett called "the greatest panic in my lifetime."

Speaking on Monday, Buffett called Bernanke "a gutsy guy" who has "done very, very well in terms of what he has done for the United States."

Last week, the Fed said it would continue to buy $85 billion of bonds per month to spur growth, and it will step up purchases if needed. The economy grew at a 2.5 percent annualized rate in the first quarter.

JPMORGAN, SUCCESSION, J.C. PENNEY

Buffett also said Jamie Dimon should remain chairman and chief executive of JPMorgan Chase & Co (JPM.N), after ISS Proxy Advisory Services urged that the roles be split and that three directors not be re-elected because of poor oversight.

Dimon and the bank have been faulted for a lack of oversight that last year led to more than $6 billion of trading losses. Buffett personally invests in JPMorgan but Berkshire does not.

"I think it's fine if he does" retain both roles, Buffett said, referring to Dimon. "If you're the director of a company like JPMorgan, you cannot know the details of what's going on with trading ... They've got the right CEO."

Berkshire does plan after Buffett leaves to split the roles, with his son Howard becoming non-executive chairman. Buffett said splitting or not splitting the roles are both acceptable.

Many investors believe three top Berkshire managers - insurance chief Ajit Jain, Burlington Northern's Matthew Rose and MidAmerican Energy's Greg Abel - are the men to whom Buffett has alluded as being candidates to become Berkshire's CEO.

Asked if it was a coincidence that they sat near the stage on Saturday, Buffett said: "Certainly could be," before adding that he asked them to sit there in case there were questions for them to answer.

Buffett also said it will be "very tough" for J.C. Penney & Co (JCP.N) to lure back many of the customers it lost in 2012 and early 2013 as the now-ousted Chief Executive Ron Johnson overhauled the retailer's stores and sales strategies.

"They obviously alienated a significant part of their customer base," Buffett said. While Berkshire does not invest in J.C. Penney, Buffett said he had a "rooting interest for them."

(Reporting by Jonathan Stempel in New York; Editing by Jeffrey Benkoe and Maureen Bavdek)
From http://www.reuters.com/article/

California Increases Yields On $1.3B Muni Bond Deal

April 12, 2012, 11:24 a.m. ET

Article from The Wall Street Journal

By Kelly Nolan 

Of DOW JONES NEWSWIRES 

California hiked yields on some parts of its $1.3 billion bond offering Thursday, after it saw weakened demand Wednesday from individual investors.

A preliminary pricing for institutional buyers Thursday showed the state increased yields on some maturities 0.02 to 0.06 percentage point from an earlier pricing for individual investors. Bonds maturing around 10 years saw yields go up the most; a nine-year maturity offered a 2.62% yield Wednesday and 2.68% on Thursday's initial pricing. The state will set final prices later this afternoon.

California saw decent demand from individual, or "retail," investors Tuesday and Wednesday, as those buyers placed orders for nearly a third, or $418.9 million, of the deal, according to the state treasurer's office. However, the pace of orders Wednesday slowed to around $90 million, compared to $329 million Tuesday.

That means roughly $882 million bonds must still be sold to institutional investors Thursday.

California has sold a "decent" amount of bonds, "but they have a lot more to go," said Dan Solender, director of municipal bond management at investment firm Lord Abbett in Jersey City, N.J.

He noted that because the state had just sold $2 billion in debt last month, a lot of California bonds were trading in the secondary market at yields that weren't "much different" from what's being offered in this week's bond sale. Solender declined to comment on whether his firm participated in the deal.

While it offered the biggest muni bond deal this week, California also faced a lot of competition. Analysts at Janney Montgomery Scott estimated there could be as much as $10 billion in new muni debt selling this week. Muni deals have generally done well, but those that offer the highest yields have done best. For instance, despite economic woes associated with the island commonwealth, Puerto Rico Electric Power Authority increased its bond sale 35% to $650 million Tuesday to meet demand.

Some market participants noted that even though California just sold $2 billion in debt recently, the state is still issuing less debt than it has in years past. This week's bond sale is part of about $5.2 billion of general-obligation bonds California plans to sell in 2012, according to the state treasurer's office. In 2010, California issued $10.4 billion in GO bonds, while in 2009, it issued $20.4 billion.

"It's not the tsunami that the market is used to," said Matt Dalton, chief executive of Belle Haven Investments in White Plains, N.Y. Dalton said his firm didn't buy any California debt though, because the yields weren't appealing enough.

Others noted that the perception of California's credit, or its ability to repay debt, has brightened. The state still faces its share of financial difficulties, and it recently completed a short-term borrowing to help stave off a cash crunch. But its projected budget deficit in January for fiscal 2013 was about $9 billion, compared to prior fiscal years, where its exceeded $20 billion.

California's revenues are also up year-over-year, said Dan Genter, chief executive of RNC Genter Capital Management in Los Angeles, which participated in the deal. "We view this as an improving credit."

Even so, California is among the lowest-rated U.S. states. S&P and Fitch Ratings give it an A-minus--the seventh highest of 10 investment-grade ratings--and Moody's Investors Service considers it A1, in the middle of its investment-grade ratings. Proceeds from this week's bond sale will be used both for refunding old debt at lower rates as well as for new infrastructure projects.

- By Kelly Nolan; Dow Jones Newswires; 615-679-9299; kelly.nolan@dowjones.com

Article from The Wall Street Journal