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

California Bond Yield Penalty Narrows on Gain in Demand

By Michael B. Marois - Apr 11, 2012 12:01 PM GMT+0800

Article from Bloomberg

California (STOCA1), poised for its first credit upgrade by Standard & Poor’s since 2006, is selling $1.3 billion of debt with its relative borrowing cost at the lowest point in more than three years.

California yesterday took orders for bonds maturing in 10 years with a preliminary yield of 2.82 percent, or 58 basis points more than top-rated securities, the smallest spread to AAA rated debt since November 2008, according to data compiled by Bloomberg. A basis point is 0.01 percentage point.

S&P, which puts California’s general obligations at A-, its fourth-lowest investment grade and the worst ranking for any state, in February changed its credit outlook to positive after Governor Jerry Brown, 74, and lawmakers took steps to ease a looming cash shortfall and cut the $20 billion annual structural deficit by three quarters.

“They’re definitely getting a better acceptance right now, just given that they’ve taken some positive steps over the last year,” said Daniel Solender, who manages more than $15 billion of municipal securities at Lord Abbett & Co. in Jersey City, New Jersey. “The deficits looking forward, while still sizeable, aren’t as big as they were.”

Treasurer Bill Lockyer is selling $890 million of general- obligation bonds for public works and $410 million to refund debt. He’ll seek bids from individuals again today before final pricing with institutions such as mutual funds tomorrow. He offered 30-year maturities yesterday at 4.45 percent, or 77 basis points more than top-rated securities.

Lower Volume

Brokers took orders for 25 percent of the debt during the first day of sales, Lockyer said. By comparison, 38 percent was sold on the first day of a $2 billion offering last month.

California has reduced the amount of general-obligation bonds it sells to the smallest two-year total since 2006 as lawmakers work to erase budget deficits. The latest sale will probably be the state’s last until around October, Tom Dresslar, a Lockyer spokesman, has said.

Combined with Brown’s proposal to raise income taxes, the lack of new offerings has stoked demand after municipal-bond yields reached four-decade lows earlier this year. The rate on general-obligation debt maturing in 20 years fell to 3.6 percent in the week ended Jan. 19, the lowest since April 1967, a Bond Buyer index shows. The index climbed to 4.08 percent last week.

Cooling Interest

The narrowing difference between California bonds compared with top-rated debt has cooled interest among some investors.

“We did see the deal and perceived it as narrow and so we declined it,” said Josh Gonze, co-manager of the $297 million Thornburg California Limited-Term Municipal Fund in Santa Fe, New Mexico. “But other investors will approve of it and say yes. So they will get the deal sold, but they won’t be able to sell any to Thornburg because we want to see more spread for this credit.”

Brown, a Democrat, has proposed erasing a $9 billion budget deficit partly by asking voters to temporarily raise income and sales taxes at the ballot box in November. If that fails, his plan calls for $5 billion of automatic cuts midway through fiscal 2012, which begins July 1. Most would come from schools.

The state’s fiscal condition remains precarious. March revenue trailed budget projections by 4.2 percent, missing the forecast by $233.5 million, according to Controller John Chiang.

To contact the reporters on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net

Article from Bloomberg