GURUFOCUS: Warren Buffett of Berkshire Hathaway Just Fed Harley-Davidson Inc. Some Motor Oil

According to today�s press release, Harley Davidson (HOG) issued $600 million senior unsecured notes to fund its wholly owned finance company, Harley-Davidson Finance Service (HDFS). The note will be repaid in 2014 and the annual interest is 15%. Warren Buffett�s company Berkshire Hathaway (BRK.A) (BRK.B) and Davis Selected Advisers, L.P. each snapped up $300 million.

Now, 15 percent per annum for a five-year note is a very high interest rate. This is how the CFO of the Harley Davidson, Thomas E. Bergmann, justified the move:

�This offering represents an important next step in executing our stated strategy for funding the lending activities of HDFS".

Impressive business talk, but it does not conceal the fact that one has to be in desperate need for the money to borrow under those terms.

The Borrowing Will Not Increase Profit

The borrowing probably won�t bring more earnings to the share holders in its life time of the next five years. What is the interest is Harley Davidson lending to its customers? 1% or 2%? So we are borrowing high and lending low. It doesn"t make sense to me.

According to GuruFocus data, HOG managed to make a little over 15% on its assets during boom years (2003-2007), but ROA has dropped to less than 10% at the end of 2008. 2009 will be another challenging year for the company. On January 23, 2009, the company announced that it saw for 2009 a reduction of 10-13% in motorcycle shipment and a shrinkage of gross margin to 30.5-31.5% from 34.5% in 2008. If the company couldn�t make more 15% on its assets (borrowed fund or equity), what is there left for share holders after paying the 15% in interest?

Harley Dividson Is Funding Its Own Sales

Instead, the loan has more to do with surviving in the current credit crunch. In the good old days, customers typically bought motorcycles from Harley Davidson Motor Cycle division; HDFS financed the purchases; HDFS turned around, securitized the loans and sold them to the Wall Street. Since 2008, �securitization� became a one of many dirty words and no one on Wall Street had much appetite for �securitized loans� of any kinds. As a result, in despite of declining revenue, HOG had to retain much more of the receivable on its balance sheet: its �Finance Receivable held for sale� more than tripled from $781 million at the end of 2007 to $2.4 billion at the end of 2008. In 2008, HOG resorted to short term borrowing and long term debt to fund this ballooned asset. Its short term liability increased from $1.9 billion to $2.6 billion; its debt increased from $980 million to $2.2 billion. The combine increase of $1.9 billion is compared to a total annual revenue of $5.6 billion, that is more than 33%.

Keeping more receivable on its balance sheet had its toll on HOG�s net income. In the final quarter of 2008, HDFS, its financing arm, had a $35.1 million write-down of retained securitization interests and a $28.4 million write-down to fair value of finance receivable held for sale. The $63 million write-down is significant compared to the quarterly net income of $77.8 million. The company wouldn�t retain so much receivable on its balance sheet if it had better choices.

Harley Dividson Has Been Credit Squeezed

It is worrisome to see its short term debt increase by $700 million. A typical loan for the motorcycles is for 5 to 7 years; apparently the company increased the short term borrowing in 2008 to financing the loans. Indeed, the company was squeezed to re-pay a $400 million mid-term note that matured in mid of December 2008. In the January 23, 2008 conference call, the company�s CFO Thomas E. Bergmann stated:

Turning to funding for HDFS, during last quarter"s conference call I explained specifically the options we had for repaying the $400 million of medium-terms notes that matured last December. Those options included accessing the unsecured debt capital market, utilizing our unsecured commercial paper program, and establishing an asset-backed commercial paper conduit facility.

We continued to access the commercial paper market throughout the quarter, including participation in the Fed"s CPSS program. By mid December it was clear that the unsecured term debt market was not accessible, so on December 12th we entered into a $500 million asset-backed commercial paper conduit facility. The funds generated from this facility were primarily used to repay the medium-term notes that matured in December.

In other words, the company borrowed short term to repay mid-term. Great band-aid corporate financing strategy.

How Long Can $600 Million Last

How long can the $600 million borrowed today from Warren Buffett�s Berkshire Hathaway and Davis Selected Advisers last? It looks like Harley needs to re-pay that $500 million asset-backed commercial paper mentioned above by March 31, 2009. Even if it can extend the terms for that loan, at the 2008 burning rate of $1.9 billion per year,, it won�t last for long unless the other options become available. In the fourth quarter conference call, CFO Thomas E. Bergmann stated:

To meet the remaining HDFS funding needs for 2009, we are pursuing three preferred paths. The first is for HDFS or Harley-Davidson, Inc., to access the unsecured debt capital market. We continue to carefully monitor these markets for opportunities.

The second preferred path is to seek to increase the $500 million asset-backed commercial paper conduit facility we entered into in December and extend the term beyond the March 31st maturity date. Expanding and extending this facility would supplement our existing unsecured commercial paper program.

And finally, we are working diligently to gain access to the asset-backed securitization market via the term asset-backed securities loan facility or TALF program. We are actively evaluating the program to further understand the details and learn how we may benefit from it. Retail motorcycle loans have been included as eligible assets in the program; however, exact details of the TALF program are not yet finalized. The general expectation is that the program will be clarified in the next few weeks.

Right now the TALF option seems to offer a more plausible mid-term solution. The Federal Reserve Board on November 25, 2008 announced the creation of the Term Asset-Backed Securities Loan Facility (TALF), a facility that will help market participants meet the credit needs of households and small businesses by supporting the issuance of asset-backed securities (ABS) collateralized by student loans, auto loans, credit card loans, and loans guaranteed by the Small Business Administration (SBA). It is not fully functional yet, it remains to be seen how effective that might be.

Why Not Cut Dividend?

It is bewildering to try to rationalize the HOG management decision today: as near as December 9, 2008, Harley Davidson announced a quarterly dividend of $0.33 per share. That is $1.32 per year. With 232 million shares outstanding, the company is paying out a little over $300 million each year as dividend. Cut the dividend, don�t borrow from Warren Buffett at 15%! Berkshire Hathaway never paid a dividend, nor had it ever had to borrow at 15% interest.

Bad For Harley Davidson, Good For Bershire Hathaway

Apparenlty, HOG share holders considered it a great endorsement from Warren Buffett. HOG stock is up $1.87 (15.77%) today. Perhaps investors took it as a hint that it is Warren Buffett�s opinion that the company will survive the ecomonic crisis for at least another five years. Probably so, but much less profitably so. As a matter of fact, I think Warren Buffett just fed the thirsty Harley Davidson some motor oil. It tastes bad, it does not really stop the thirst. It is simply not a healthy drink.

On the other hand, the 15% interest on $300 million is a good return for Berkshire Hathaway�s share holders.

Go Berkshire Hathaway!

Filed Under: BRK-A, HOG, BRK-B,


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Billmon Gets It - Do You

Buried deep in a Billmon Post last week was a critical chart and a few words of wisdom on why this is NOT a repeat of the inflation scene of the 70"s and 80"s. Most reading his post probably missed the key idea in a potpourri of other ideas. Let"s take a look.

Wages and Salaries

We would need to see a lot faster wage growth -- growth at or exceeding the current 3% core CPI rate -- before I would think about buying a piece of the inflation is coming back story.


















And while those kind of wage gains are not impossible I definitely don"t see it right now. What we have, in other words, is almost pure cost-push inflation -- instead of the wage-price spiral that made the "70s such an interesting time to live through, financially speaking.

At some point, presumably when the extra disposable income derived from that last mortgage refi runs out, households are going to have to suck it in. Indeed it looks like it"s already started -- retail sales are weakening and the Amazon-sized river of imports flowing in from points east (or west, if you live in California) has actually slowed a bit.

Meanwhile, job growth has decelerated, jobless claims are creeping up and housing starts finally appear to be, well, stopping.

That indeed is the heart of the matter. I have been harping about this for what seems like ages. Everyone is in some sort of "Inflation Scare" AFTER 16 consecutive rate hikes. Does this make any sense? I suppose it does to those that are perpetually gloomy on the US$ or US treasuries who probably now feel vindicated by this blip up in treasury yields.

It all comes down to wages and housing and jobs. Without meaningful rises in employment and wages, the former above the birth rate plus the rate of immigration (both illegal and illegal), and the latter above the TRUE cost of living, inflation really does not have a chance. Yes at 1% we had sustainable inflation. An incredible housing boom was the result. The better question (looking ahead) is "What Now?"

Has Inflation Won Out?

I have been asked countless times what it would take for me to throw in my "deflation towel", oddly enough(or perhaps not) most of those questions have come in the last few months right on the verge of victory. Unlike Stephen Roach (a Morgan Stanley permabear who suddenly and without reason turned bullish about two weeks ago), I am not reversing course here.

Is that illogical? I think not. I have many times stated what will change my mind. It is really simple: "wage increases, job growth, and housing that does not bust". I see little reason to change course now. In fact, treasuries are probably a screaming buy.

Primer on Inflation

Most people screaming "inflation" do not know what it really is.
Those that think "Inflation = Price Increases" are sadly mistaken.
In fact that is one of the reasons why we see repetitive bubbles being blown by the Fed.

If you think inflation = price rises, I suggest reading the following:

1. Inflation: What the heck is it?
2. Inflation Monster Captured
3. Marc Faber shatters prevailing market myths

One of the reasons for these repetitive bubbles is the Fed does not itself know what inflation is. They think they can micromanage the economy when all they are doing is chasing their tale due to the lagging effect of their actions.

At some point, and I think we are at that point right now, a sort of economic zugzwang is reached. I spoke about this in Red Queen Race. Here is the critical diagram.



In economic terms, there is no magic mirror.
Bernanke is trapped in "Wonderland" but unlike Alice has no way out.
Bernanke gets to choose between hyperinflation and deflation.
The moment he can not run fast enough, the US economy will implode.
If he runs too fast, the value of the US dollar as well as the Fed�s power will both come to a very abrupt stop.

Economic Checkmate

In effect Bernanke is in Zugzwang and he does not even know it.

Eventually Bernanke (like the Bank of Japan) will have to choose deflation. The reason is simple: hyperinflation will end the game, which in turn would eliminate the wealth of the Fed as well as all of their power.

I do not know if Billmon is an inflationist or a deflationist or either. Personally I think the latter (neither). What I do know is that without wage growth and with a housing bust, inflation is extremely unlikely to raise its head.

While everyone else is looking at the oil scare in the 70"s as the model, virtually no one is looking at Japan of the 90"s as the model. I am betting on the latter.

PS to Billmon:
Whatever graphic package you are using it seems worse than google software that I am using that only handles JPEG images as opposed to GIF images. I touched up the years on your chart as well as adding a trendline to show just how pathetic this recovery has been wage wise. But... beggars can"t be choosy. Nice article.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

Cheney "Got In The President"s Face" Over Libby Pardon: "He Just Wouldn"t Give It Up"

Treason is the word Georgies daddy used, isn"t it?In next week"s cover story, TIME magazine delves deep into the relationship between former President Bush and Vice-President Dick Cheney -- in particular, their falling-out over the pardon of Scooter Libby in the Valerie Plame leak.
Massimo Calabresi and Michael Weisskopf examine the "last hours ...in the mysterious and mostly opaque relationship at the center of a tumultuous period in American history," a press release from the magazine reads.
Cheney stretched the boundaries of his relationship with Bush in his relentless quest to get his ex-Chief of Staff pardoned:
Petitions for pardons are usually sent in writing to the White House counsel"s office or a specially designated attorney at the Department of Justice. In Libby"s case, Cheney simply carried the message directly to Bush, as he had with so many other issues in the past, pressing the President in one-on-one meetings or in larger settings. A White House veteran was struck by his "extraordinary level of attention" to the case. Cheney"s persistence became nearly as big an issue as the pardon itself. "Cheney really got in the President"s face," says a longtime Bush-family source. "He just wouldn"t give it up."
And there was a darker possibility. As a former Bush senior aide explains, "I"m sure the President and [chief of staff] Josh [Bolten] and Fred had a concern that somewhere, deep in there, there was a cover-up." It had been an article of faith among Cheney"s critics that the Vice President wanted a pardon for Libby because Libby had taken the fall for him in the Fitzgerald probe.
Bush and his lawyer ultimately agreed that Libby had lied under oath. Read the whole story.

Cheney Wanted To Use Military To Arrest Terror Suspects In U.S.

Bush-Era Debate: Using G.I.�s in U.S.

WASHINGTON � Top Bush administration officials in 2002 debated testing the Constitution by sending American troops into the suburbs of Buffalo to arrest a group of men suspected of plotting with Al Qaeda, according to former administration officials.
Some of the advisers to President George W. Bush, including Vice President Dick Cheney, argued that a president had the power to use the military on domestic soil to sweep up the terrorism suspects, who came to be known as the Lackawanna Six, and declare them enemy combatants.
Mr. Bush ultimately decided against the proposal to use military force.
A decision to dispatch troops into the streets to make arrests would be nearly unprecedented in American history, as both the Constitution and subsequent laws restrict the military from being used to conduct domestic raids and seize property.
The Fourth Amendment bans �unreasonable� searches and seizures without probable cause. And the Posse Comitatus Act of 1878 generally prohibits the military from acting in a law enforcement capacity.
In the discussions, Mr. Cheney and others cited an Oct. 23, 2001, memorandum from the Justice Department that, using a broad interpretation of presidential authority, argued that the domestic use of the military against Al Qaeda would be legal because it served a national security, rather than a law enforcement, purpose.
�The president has ample constitutional and statutory authority to deploy the military against international or foreign terrorists operating within the United States,� the memorandum said.

LinkHere

Senate GOP Set To Block Troop Funding Bill

Republicans in the Senate may be walking into a political trap this week, in which their insistence on considering energy legislation leads them to block significant increases in funding for the troops in Iraq.
Going into this week, the Senate Republicans insisted that they would block all the legislative measures until an energy bill was first brought to the floor.
Democratic leadership, initially furious over the obstructionism, is now calling their bluff. Senate Majority Leader Harry Reid last night introduced a Department of Defense Authorization bill that would, among other things, include a 3.9 percent across-the-board pay raise for military personnel; major funding increases for research into traumatic brain injury treatment and troop suicide prevention efforts; $26 billion for the Defense Health Program, and $500 million for Mine Resistant Ambush Protected (MRAP) vehicles. A vote could come as early as tonight.
Should the GOP stick to its guns and filibuster the measure while insisting on an energy bill vote, they may effectively remove a talking point from the party"s playbook. Going into the November elections, it will be the Democrats who can argue that the other party stood in the way of funding for the troops.

McCain: McSame as Bush

LinkHere

PR NEWSWIRE: BYD Auto to Unveil First Production Plug-In Hybrid Vehicle

DETROIT, Jan. 9 /PRNewswire/ -- BYD Auto Company, one of China"s top independent automobile manufacturers and a world leader in green technology, will host a press conference at 10:50 a.m., Monday, January 12, at the North American International Auto Show at Detroit"s Cobo Center.

BYD Auto will introduce several important new models that represent the company"s strategic vision of "green tech for tomorrow," including the e6 electric crossover vehicle and the F3DM sedan, the first production plug-in hybrid vehicle.

BYD executives will provide details about the company"s advanced Fe lithium-iron battery and its new Dual Mode (DM) plug-in hybrid system.

BYD Auto President Wang Chuanfu will be joined at the press conference by David Sokol, chairman of MidAmerican Energy Holdings. In September 2008, MidAmerican, a subsidiary of Warren Buffett"s Berkshire Hathaway, acquired a 10% stake in BYD Auto"s parent company, BYD Company Ltd.

About BYD Auto

BYD Auto Company, based in Shenzhen, China, is emerging as a leader in pure electric and plug-in hybrid gasoline-electric vehicles, as well as advanced battery technology. It is a subsidiary of BYD Company Ltd., the world"s second largest producer of rechargeable batteries and a supplier of IT components to Nokia, Motorola, Samsung and others. Information about BYD Auto is available at www.byd.com.

About MidAmerican Energy Holdings

MidAmerican Energy Holdings Company, based in Des Moines, Iowa, is a global provider of energy services. It is a subsidiary of Berkshire Hathaway. Through its energy-related business platforms, MidAmerican provides electric and natural gas service to more than 6.9 million customers worldwide. These business platforms are Pacific Power, Rocky Mountain Power and PacifiCorp Energy, which comprise PacifiCorp; MidAmerican Energy Company; CE Electric UK; Northern Natural Gas Company; Kern River Gas Transmission Company; and CalEnergy. Information about MidAmerican is available at www.midamerican.com.

SOURCE BYD Auto Company

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Right On, General Clark. Do Not Back Down.

Boy, talk about your echo chamber in the media. Yesterday, General Wesley Clark went on CBS" Face the Nation, and repeated something he"s said many times before. If you missed it, here"s the full quote in context :

=======

Why?
This wasn"t a swift boating, or any low politics. General Clark called McCain a hero to millions for his sacrifice. And, that"s a pretty big statement coming from a man who, himself, left Vietnam on a stretcher. But, facts are facts:
� Senator McCain"s service and experience, both as a POW and as a Senator apparently hasn"t infused him with a dose of good judgment.
� Senator McCain"s experience hasn"t led him to realize that the war in Iraq and it"s continuance has empowered and emboldened Iran, and destabilized the region.
� Senator McCain"s experience hasn"t caused him to recognize that we"re losing ground in Afghanistan, and Osama bin Laden is still out there, plotting.
� Senator McCain"s experience didn"t lead him to support the 21st Century GI Bill -- he opposed it. It didn"t even make him feel the need to get back to Washington to vote on this -- one of the most important veterans" bills this Congress. He twice skipped votes on the GI Bill, to fundraise.
� Senator McCain"s experience didn"t help him empathize with troops are overstretched and overdeployed, when he voted against the bipartisan Webb-Hagel "Dwell Time Amendment," which would have given troops as much time at home as in the field.
Senator McCain is running on his experience, saying it makes him ready to lead right away. By doing so, he is asking people to look at what that experience taught him. By looking at Senator McCain"s positions and votes (or lack of them), it seems that experience has not given him the right judgment on important issues of our time. And, while we should all honor Senator McCain"s service, that doesn"t mean we should necessarily honor it by putting him in the White House to take up George W. Bush"s third term.
So, General Clark is 100 percent absolutely right, and he should not back down. I"d hope that some of the so-called progressives on television back him up on this, and not get intimidated by the media and McCain campaign press releases. These are important times, and deserve a blunt and honest debate.
In some circles, that"s just called "straight talk."
UPDATE: Since a lot of you are sending words of support on here for General Clark, we started a petition where you can sign to thank him, and tell him to keep it up. We will take the petition to General Clark, personally. Also, it"s important to sign, so we can show the media that we"ve got his back.
LinkHere

McCain �Truth Squad� headed by 2004 Swift Boat Liar

Jun 30, 2008 - 02:26 PM by Terri Buchman
The Huffington Post is reporting today that Sen. John McCain has hired Bud Day, from the 2004 group Swift Boat Veterans for Truth, to "truth squad" attacks on Sen. McCain"s service record.
LinkHere

Here McCain jokes about how unqualified he is

McCain Comedy Tour

and he"s even more unfunny than Bush. Slugbug

Inadequate Loan Loss Reserves At Numerous Minnesota Banks

At Minnesota banks, bad loans are piling up much faster than the amount of money being set aside to cover them. The StarTribune takes a look at the problem in State"s banks below norm in reserves.

Despite repeated warnings of economic trouble ahead, banks in Minnesota have failed to keep pace with the rise in bad loans. Among those banks, the ratio of past-due and nonaccrual loans -- or loans for which payment is in doubt -- as a percentage of total loans rose 50 percent since 2006, while the reserves to total loans ratio remained virtually unchanged.

Many Wall Street analysts watch bank reserves more closely than bank profits, said analyst Crabtree in Minneapolis. "Earnings mean very little nowadays, because no one believes them," he said. "Reserve levels and capital ratios are by far more important."

As of the third quarter, the average coverage ratio for Minnesota banks fell to its lowest level in nearly two decades.

As of Sept. 30, the coverage ratio for Minnesota banks was 61 percent, which means that for every $1 in noncurrent loans the banks have set aside 61 cents to cover future losses, according to the FDIC. That"s down from 81 percent a year earlier. Nationwide, the coverage ratio stands at 85 percent -- nearly a third higher than Minnesota"s.

Nearly 40 of the state"s 400 banks have coverage ratios below 30 percent, a level that is less than half the state average. Among the larger ones are First Minnesota Bank of Minnetonka, with more than $370 million in assets, and Minnwest Bank Minnesota Valley in Redwood Falls with assets of $510 million.

One reason Minnesota banks are reserving less than peers in other parts of the country is that the state experienced a boom in bank startups earlier this decade. So, like Summit, many of these banks are still building reserves.

Another theory is that Minnesota has a larger number of small, community banks than other states. Those banks made fewer of the subprime mortgages that defaulted in the credit crisis, but did more of the commercial real estate loans that have only just started to turn sour, said several bank experts.

The Article is 4 pages long with two interesting graphics worth a good look. Here is one of the graphs.



Nearly 40 Minnesota banks have coverage ratios below 30 percent. They are at severe risk. Mainstreet Bank, one of Minnesota"s largest and oldest community banks received an FDIC order to change. Please see Hazardous Lending and Lax Collection Practices for more details.

Three More Banks Shut Down

On Friday, Three More U.S. Banks Were Shut by Regulators.

Three banks, two in California and one in Georgia, were seized by regulators, bringing this year�s tally of closings to nine as a recession and record foreclosures extend the biggest financial crisis in more than 70 years.

County Bank of Merced, California, with deposits of $1.3 billion and assets of $1.7 billion, was shut yesterday by the state�s Department of Financial Institutions, according to an e-mailed statement from the Federal Deposit Insurance Corp. Westamerica Bancorporation, holding company for Westamerica Bank, acquired all the assets and deposits.

The Georgia Department of Banking and Finance closed McDonough-based FirstBank Financial Services Inc., which had $337 million in assets and $279 million in deposits as of Dec. 31, the FDIC said in a statement. The California Department of Financial Institutions shut Culver City-based Alliance Bank, with assets of $1.14 billion and $951 million in deposits.

Nine bank closings this year is a drop in the bucket for what is coming. And were it not for taxpayer bailouts of Citigroup (C) and Bank of America (BAC) they would already be under as well. For further discussion see Extreme Leverage In Reverse Portends Global Systemic Crash. In aggregate, the entire global banking system is insolvent.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Currency Intervention And Other Conspiracies

The US dollar rallied fast and furious last week. The dollar rally was the biggest in 8 years vs. the Euro. This immediately brought out calls of Dollar Intervention such as the one below. Note: the arrow and circle in deep blue were added by me.

click on chart for sharper image

The very large drop recently (the pale blue line) tells part of the story. Another part is told by the Treasury site itself - that recent data about the drop was delayed for almost three weeks before it was made public.

Another part is told by very recent data not being made public for the last two weeks running.

What the ESF did is simply sold about 10 billion Euros and bought dollars - plain and simple massive intervention that virtually everyone has missed or ignored or pretended doesn"t exist or whatever.

The raw facts are sitting there at U.S. International Reserve Position.

Assuming one buys the story, what stands out is 13 consecutive alleged interventions that all failed.

Mystery Solved

James Turk on GoldMoney is writing Mystery Solved.

On July 15th the US Dollar Index closed at 71.87, the lowest close since reaching its record low in April. However, rather than continue lower and fall off the edge of the cliff, the Dollar Index suddenly and mysteriously reversed course. It has now risen on 12 of the 17 trading days since reaching that low, and closed today at 74.55, a 5-month high. What caused this index to suddenly pull back from the brink and then reverse course to shoot higher over the past three weeks?

There has not been any news exceptionally favorable to the dollar. In fact, the banking problems in the United States continue to mount, while the federal government"s deficit continues to soar out of control. On July 28th Reuters reported that "The Bush administration on Monday plans to project the U.S. budget deficit will soar to a new record...because of the slowing economy and an economic stimulus plan approved this year."

So what happened to cause the dollar to rally over the past three weeks? In a word, intervention. ...

For the record, I respect James Turk. However, there was plenty of news favorable to the dollar.

• Oil was falling which would help the US balance of trade.
  
  
• Container shipments into the US were weakening which would also suggest an improvement in the balance of trade.
  
  
• Economic activity in Europe had started to crater.

Those are very significant items. I talked about them at length in Trichet Puts Spotlight on the Euro, Dollar.

The dollar rally continued on Friday and I posted some Thursday To Friday comparison charts on the Dollar Index, the Euro, and the British Pound in U.S. Dollar Rally Continues. Here are the charts of the dollar index.

$USD - US$ Index Daily (Thursday Evening)



Click on chart for sharper image

$USD - US$ Index Daily (Friday Evening)



Click on chart for sharper image

Marc Faber Weighs In

There is a very interesting Bloomberg video interview of Faber that I commented on in Marc Faber - Bullish On The US$, Bearish On Commodities.

I transcribed a portion of it. Here is the key snip:

Q: Is the Euro Doomed to keep falling?

A: Whenever global liquidity tightens relatively speaking, it is very US$ supportive. Obviously, there are always time lags between economic events until the the market perceives them. So as a result of weak demand in the US, lower imports, the demand for oil declines, and that led to a tightening of global liquidity which led to the strong dollar. Investors speak of weak oil price as being bullish but the point is that it signals the global economy is in recession already.

Can Currency Intervention Halt the U.S. Dollar�s Nosedive?

Now let"s address the question as to whether or not 10 billion Euros would be massive enough to do anything.

GATA the Gold Anti-Trust Action Committee is reporting on the currency intervention option and monetization of oil in its usual conspiracy-minded fashion:

The story below from the Associated Press, the largest news agency in the world, may be most notable for acknowledging the potential for government intervention in the currency markets -- market manipulation, really -- and for reporting the surmise of an expert in the energy business that oil has been monetized, replacing the U.S. dollar as the world currency, becoming the "new gold."

The one thing that made the most sense in the article mentioned was this paragraph. "It would take great sums of money to make any difference. The foreign exchange market is the largest in the world, with over $1 trillion traded each day."

On July 2nd Peter Schiff stated Currency Intervention Won�t Halt the U.S. Dollar�s Nosedive

Intervention advocates must believe that if the European Central Bank (ECB) and a few other central banks joined the fray, that a better outcome would be achieved. However, any additional efforts to artificially prop up the ailing dollar will be equally ineffective.

Even if ECB intervention could slow the dollar�s descent, what possible reason would the Fed�s European counterpart have for doing so? The ECB is already concerned about inflation and is preparing to raise rates as a result.

Interestingly, Schiff claims intervention won"t work and the ECB is prepared to hike while others claim intervention was responsible for the rally even though intervention failed 13 consecutive times before there was a success .

A Look At Japan"s Intervention in 2003-2004

Japan was intervening in the currency market and you know they were doing it because they admitted it. Please consider this article from 2004 called The dollar and yen: why they matter.

Why is Japan intervening? Because it believes the yen needs to be held down to keep Japanese exports competitive.

The policy of intervention began in earnest in August last year, when the decline of the dollar gathered pace. In 2003, the Japanese government spent $100bn buying dollars in an attempt to hold down the value of the yen. In the first two months of this year, it spent another $100bn. And Japan�s parliament has authorised the spending of a further $360bn this year.

Note those numbers. Japan spent hundreds of billions in 2003 starting in August, attempting to prop up the dollar.

Japan halted its currency intervention in March of 2004 according to the International Herald Tribune article EU officials soften stance on yen"s weakness.

Yen vs. Japan"s Intervention 2003-2004



click on chart for sharper image

If ever there was proof of the absurdity of currency interventions there it is. Ironically the Yen started plunging shortly after Japan stopped trying to force down the value of the Yen.

So now we are supposed to believe the dollar rallied because of a so called "massive" one time 10 billion Euro trade when Japan produced negative results after spending $300 billion over the course of 7 months!?

The Primary Trend Cannot Be Suppressed

The primary trend in currencies cannot be suppressed and even a cyclical countertrend move cannot be suppressed. The same holds true for gold, silver, and even the equity markets. Sadly we see GATA and others arguing over every tick in gold and silver. The most frequently pointed out item is that there is an enormous cartel that is short silver, thereby suppressing the price.

No one ever bothers to mention that for every short there is a long. It would make nearly as much sense to say there is a massive conspiracy to force up the price of silver. And those doing this ridiculous whining better think through the implications of getting what they seem to be asking for.

Imagine what would happen if the futures trading commission decided to limit silver contracts to what could be delivered in a month"s time. I suggest it would not be pretty because the commercials would know what was coming and be prepared in advance. One nice lock limit down opening in silver would start the ball rolling for good.

It"s time to realize that gold and silver have rallied massively in 7 years. And if both can do that in the face of such massive intervention, the logical thing for gold and silver bulls might be to ask for more of it.

If and when the US dollar rally fails it will be because the rally was ready to fail. That might be a week from now, a month from now or even a year from now. No one knows. What we do know is intervention (or lack thereof) will not be a factor when it does happen.

There is one more point I want to mention about the US dollar. There is a secular shift underway in the US from consumption to saving. The word that best describes this is "frugality". An frugality is very dollar supportive.

And it was Professor Kevin Depew who coined the phrase It"s Cool to Be Frugal. I commented on frugality at great length in The Future Is Frugality.

Inquiring minds will certainly want to take a look.

Here"s the deal for dollar bears: The dollar rallied because it was damn good and ready to rally. Those with their eyes open spotted fundamental reasons in advance. Those who did not, blamed intervention.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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The man who knows too much

He exposed the My Lai massacre, revealed Nixon"s secret bombing of Cambodia and has hounded Bush and Cheney over the abuse of prisoners in Abu Ghraib... No wonder the Republicans describe Seymour Hersh as "the closest thing American journalism has to a terrorist". Rachel Cooke meets the most-feared investigative reporter in Washington

American investigative journalist Seymour Hersh. Photograph: Martha Camarillo
Every so often, a famous actor or producer will contact Seymour Hersh, wanting to make a movie about his most famous story: his single-handed uncovering, in 1969, of the My Lai massacre, in which an American platoon stormed a village in South Vietnam and, finding only its elderly, women and children, launched into a frenzy of shooting, stabbing and gang-raping. It won him a Pulitzer prize and hastened the end of the Vietnam war. Mostly, they come to see him in his office in downtown Washington, a two-room suite that he has occupied for the past 17 years. Do they like what they see? You bet they do, even if the movie has yet to be made. "Brad Pitt loved this place," says Hersh with a wolfish grin. "It totally fits the clich� of the grungy reporter"s den!" When last he renewed the lease, he tells me, he made it a condition of signing that the office would not be redecorated - the idea of moving all his stuff was too much. It"s not hard to see why. Slowly, I move my head through 180 degrees, trying not to panic at the sight of so much paper piled so precipitously. Before me are 8,000 legal notepads, or so it seems, each one filled with a Biro Cuneiform of scribbled telephone numbers. By the time I look at Hersh again - the full panorama takes a moment or two - he is silently examining the wall behind his desk, which is grey with grime, and striated as if a billy goat had sharpened its horns on it. LinkHere

Rail Traffic Down; Truck Traffic Down; Air Cargo Hoping For A Bottom

Green shoots are not yet showing up in cargo statistics. Let"s take a look starting with AAR: Rail freight traffic down from a year ago.

Freight traffic on U.S. railroads during the week ended May 23 remained down in comparison with last year, although it did show an increase from the previous week this year, the Association of American Railroads reported today.

U.S. railroads originated 259,265 cars during the week, down 21.5 percent from the comparison week in 2008, but up 4.9 percent from the previous week this year. In comparison with last year, loadings were down 16.4 percent in the West and 28.0 percent in the East.

All 19 carload commodity groups were down from last year, with declines ranging from 4.8 percent for farm products other than grain to 59.7 percent for metallic ores.

Intermodal volume of 188,885 trailers or containers was off 19.1 percent from last year, with container volume down 14.2 percent and trailer traffic off 37.2 percent. Intermodal volume was up 0.2 percent from the previous week this year.

For the first 20 weeks of 2009, U.S. railroads reported cumulative volume of 5,295,843 carloads, down 19.3 percent from 2008; 3,720,454 trailers or containers, down 16.8 percent; and total volume of an estimated 562.0 billion ton-miles, down 18.2 percent.

Canadian railroads reported volume of 53,316 cars for the week, down 33.5 percent from last year, and 37,052 trailers or containers, down 18.9 percent. For the first 20 weeks of 2009, Canadian railroads reported cumulative volume of 1,193,070 carloads, down 23.4 percent from last year; and 810,785 trailers or containers, down 14.5 percent.

Mexican railroads reported originated volume of 13,102 cars, virtually the same as last year, and 5,188 trailers or containers, down 18.8 percent. Cumulative volume on Mexican railroads for the first 20 weeks of 2009 was reported as 219,541 carloads, down 12.3 percent from last year; and 95,217 trailers or containers, down 19.8 percent.

Combined North American rail volume for the first 20 weeks of 2009 on 14 reporting U.S., Canadian and Mexican railroads totaled 6,708,454 carloads, down 19.9 percent from last year, and 4,626,456 trailers and containers, down 16.4 percent from last year.

Rail Carloading Report

The Weekly Railfax Rail Carloading Report has the hollowing charts of interest.

Total Industry Charts, US, Canada, Mexico



Additional charts show numbers up from earlier in the year. However the charts also show a seasonal dip at the beginning of the year.

Is truck freight bottom close?

Fleet Owner is asking Is truck freight bottom close?

Freight tonnage fell again in April, according to numbers released by the American Trucking Assns. (ATA), indicating that trucking companies are still facing lean times.

The ATA said its seasonally adjusted for-hire truck tonnage index fell 2.2% in April, after plunging 4.5% percent in March. Compared with April 2008, tonnage contracted 13.2%, which was the worst year-over-year decrease of the current cycle and the largest drop in thirteen years, said Bob Costello, ATA chief economist.

�While most key economic indicators are decreasing at a slower rate, the year-over-year contractions in truck tonnage accelerated because businesses are right-sizing their inventories, which means fewer truck shipments,� he explained. �The absolute dollar value of inventories has fallen, but sales have decreased as much or more, which means that inventories are still too high for the current level of sales. Until this correction is complete, freight will be tough for motor carriers.� Costello added that truck freight has yet to hit bottom and it could be a few more months before this occurs.

However, Eric Starks, president of research firm FTR Associates, pointed out that while the freight market might not have bottomed out as of yet, it�s very close to doing so. �We still think we�ll reach that bottom around the middle of summer,� he told FleetOwner.

The �million dollar question� from Stark�s perspective is how long the freight market will stay at the bottom. �Even once we reach the bottom, [trucking companies] are not out of the woods. We could sit with some very depressed freight levels for some time,� he cautioned.

Air cargo at a bottom?

The International Air Transport Association says air cargo market probably hit bottom.

A decline in the air cargo freight market following the international financial crisis seems to have hit bottom, the head of the International Air Transport Association said on Sunday. Air cargo, a key barometer of world trade, has slumped amid the global economic downturn and shortage of financing. Global air freight volumes in January saw a record 23 percent year-on-year dive.

"I would say, looking at the numbers, that it has hit bottom," the global association"s Director-General Giovanni Bisignani told Reuters.
Bisignani said the market had at least been stabilising at levels around 20 percent lower than a year ago.

"It"s not yet enough to say that the situation is picking up because this is also linked with the level of inventories of the manufacturers. So we have to wait at least another 3 or 4 months in order to see if we start moving."

Rebound Questionable

Shipping may have bottomed, but as long as the economy is losing 500,000 jobs a month and housing is still in a decline, any rebound will be anemic at best.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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The Corporation

Video

This is an extraordinary film about the creation of the American corporation, its legal organizational model, its global economic dominance and its psychopathic tendencies, and its incredible ambition to influence every aspect of culture in its unrelenting pursuit of profit. LinkHere

Weiner Takes Lieberman On For "Audacity" Of Filibuster

Rep. Anthony Weiner (D-N.Y.) took on Sen. Joe Lieberman (I-Conn.) on "Morning Joe" Monday, chastising the former Democrat for pledging to join a filibuster against health care reform if it contains a public option.

"It"s inconsistent with common sense to say I oppose something that will hold down costs for the taxpayers and residents of Connecticut," Weiner said. "The insurance industry is a powerful force in Washington and so is the status quo, but the audacity to saying, and I think he backed away from it, "I will not permit a vote on the concept?" Let"s let the majority decide this issue."

Weiner offered to debate the senator, saying "If you want to bring Lieberman here, I think that I can talk him into it." LinkHere

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�Holding him up in honor stimulates the worst impulses of human nature and makes a mockery of our nation"s values,"

COUNTY NAACP JOINS PROTEST AGAINST �GLENN BECK DAY� IN MOUNT VERNON

Sky Valley Chronicle Washington State
(REGIONAL) -- The NAACP has now added its voice to the protest against Mount Vernon Mayor Bud Norris" controversial decision to present FOX news TV and radio talk show commentator Glenn Beck with a key to the city Saturday September 26 in a $25 dollar a ticket event called "Glenn Beck Day" in Mount Vernon.
The Snohomish County Chapter of the National Association for the Advancement of Colored People announced its protest Friday with president Janice R. Greene, saying �Holding him up in honor stimulates the worst impulses of human nature and makes a mockery of our nation"s values," highlighting Beck"s inflammatory July 28th remark that he believed President Obama to be a "racist."
The statement cost Beck over three-dozen national advertisers who ordered their commercials not run within his show.
Beck is also known for such on- air musings as pondering about the killing of filmmaker Michael Moore (who�s new movie is �Capitalism: A Love Story�) and poisoning House Speaker Nancy Pelosi as well as perpetuating the long discredited "death panel" false claim about proposed health-care reform. LinkHere

Do you ever get tired of Fox News" crops?

Fox News Caught Repeatedly Cropping, Manipulating

Hey, kids! Do you ever get tired of Fox News" crops? I don"t mean the food they might be literally growing, in Glenn Beck"s Doom Room, in preparation for Imminent Socialist Panic. I"m talking about the way they manipulate video to make it look like people are just straight up saying the opposite thing they actually said. Well, it"s been bothering the media critics at Media Matters For America for some time, and they have, for a long time, been cataloging "examples of Fox News hosts and correspondents cropping comments by progressives and Democratic political figures in a manner that misrepresents them." A new mash-up video offers some side-by-side examples of what they"re talking about:

Fox Crops

REPORT: Time and again, Fox News doctors video to smear progressives

Media Matters 8 hours and 28 minutes ago
SUMMARY: Media Matters has documented numerous examples of Fox News hosts and correspondents cropping comments by progressives and Democratic political figures in a manner that misrepresents them.

by draftedin68

FOX NEWS...We Distort, You"re Deceived.

CNBC: Warren Buffett Tells CNBC He Wholeheartedly Supports Bailout Plan

Topics:Congress | Federal Reserve | Ben Bernanke | Henry Paulson | Credit | Politics & Government | Warren Buffett

Companies:Berkshire Hathaway Inc.

The Bush administration"s controversial financial bailout proposal may be getting a heavy dose of criticism today from angry lawmakers on Capitol Hill, but Warren Buffett tells us he wholeheartedly supports the plan.

He told CNBC"s Becky Quick over the weekend, "It"s what I would do if I were there."

If opposition does continues to grow, Paulson might think about asking Buffett to come to Washington and do some lobbying, a task he might find more palatable than taking on responsibility for the whole thing!

Becky also notes that the SEC"s "no-short" rules may indeed have been responsible for that enormous last-second spike in Berkshire Hathaway"s stock price late Friday.

Current Berkshire stock prices:

Class A: [US;BRK.A 127650.0 -3350.00 (-2.56%) ]

Class B: [US;BRK.B 4260.0 -95.00 (-2.18%) ]

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What is this "Iraq war" charge on my bill?

What is this "Iraq war" charge on my bill? Part 2

Get this "Iraq war" charge off my bill!

Obama Introduces Supreme Court Nominee

President Obama announced Tuesday morning that federal appeals court judge Sonia Sotomayor is his nominee for the Supreme Court vacancy.
Praising her as "an inspiring woman" in his introduction, Obama said she had more experience than anyone on the court and has earned the "respect of colleagues on the bench," the admiration of lawyers and "the adoration of her clerks." He highlighted the barriers she faced in making it to this position, including her diabetes.
"My heart today is bursting with gratitude," Sotomayor said when she took the podium. The judge gave a touching tribute to her mother, telling the audience, "I have often said that I am all I am because of her, and I am only half the woman she is." LinkHere

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GOP Senators All Repeat Same Line Questioning Sotomayor

GOP Frets Over Sotomayor"s "Personal Politics, Feelings, And Preferences"

Specter Wants to Prosecute Yoo and Other DOJ Lawyers for Memos

Senator Arlen Specter is open to criminally prosecuting John Yoo and the other lawyers at the Department of Justice Office of Legal Counsel (OLC) for writing the memos justifying unconstitutional action:

Sen. Arlen Specter (R-PA) said he was opposed to any Truth Commission tasked with investigating Bush administration abuses, but that he could support criminal investigations into political appointees who authored the controversial OLC memos.

***

�I would not mind looking backward if there�s reason to do so. If we have evidence of torture � go after it. If there�s reason to believe that these Justice Department officials have knowingly given the president cover for practices they know not to be right or sound � go after them. Some of the [OLC] opinions are more than startling, they�re shocking. If [OLC counsel] did that knowingly�it sounds to me that it may fall within criminal conduct.

Specter said he supported the Justice Department pursuing an investigation into the writing of the memos.

Of course, Yoo and the other devil"s advocates at the OLC did commit illegal acts which warrant prosecution. Indeed, they are war crimes under U.S. and international law. See this, this, this, and this.

But as any lawyer will tell you, it is the client which decides what to do, and then the lawyer simply tries to find a way to justify it. In most cases, the lawyers aren"t the decision-makers, simply the lapdogs serving power. Clearly, Bush and Cheney decided on what they were going to do first, and then asked the OLC to provide cover for it.

Why just go after the devil"s advocate, and not the devils themselves?

Industrial Production Drops .6 Percent; Manufacturing Index Falls to Minus 25.8

Bloomberg is reporting Industrial Production Falls on Autos.

Manufacturing in the U.S. slumped further in November as exports tumbled and automakers slashed their assembly rate to the lowest level in more than 18 years.

Industrial production fell 0.6 percent, the third drop in four months, the Federal Reserve said today in Washington. The New York Fed reported the weakest factory performance in its region this month since its survey began in 2001.

Today�s figures may intensify pressure on the Bush administration to prevent a collapse of General Motors Corp., the biggest American carmaker. As consumer demand slides with higher unemployment and a cut-off of credit, manufacturing is poised to keep contracting into 2009, economists said.

The slide in manufacturing has idled almost one quarter of U.S. industrial capacity. The utilization rate, which measures actual production as a share of the maximum potential, fell to 75.4 percent, compared with an average of 79.7 percent in the past five years.

The nationwide industrial output report showed factory output, which accounts for four-fifths of industrial production, decreased 1.4 percent. Production of metals, furniture and construction supplies all dropped. Aircraft production was one of the only manufacturing categories showing gains during the month, as work resumed at Boeing Co. following a strike.

Industrial Production And Capacity Utilization

Let"s take a look at the official release of Industrial Production And Capacity Utilization for November.

Industrial production decreased 0.6 percent in November with declines widespread across industries. The drop in output in September was revised down, and the rebound in October was revised up, in large part because both the decrease due to the September hurricanes and the subsequent partial recovery in October were larger than previously reported.

The output of mines advanced 2.5 percent, primarily as a result of a further post-hurricane recovery in crude oil and natural gas operations in the Gulf of Mexico. Taken together, the rebounds after the strike and the hurricanes added almost 1 percentage point to the change in industrial production. The output of utilities rose 1.6 percent.

Among consumer durable goods, the decreases in production were broadly based: Automotive products dropped 2.6 percent; appliances, furniture, and carpeting fell 4.0 percent; home electronics moved down 1.7 percent; and miscellaneous goods declined 3.4 percent.

The output of business equipment rose 3.2 percent in November. The production of transit equipment jumped more than 40 percent after having plunged in September and October because of the strike in the commercial aircraft industry.

The only bright spots can be attributed to the end of the Boeing strike and a rebound in activity after hurricanes. Of course it is a fallacy to state there is any economic benefit derived from hurricanes or any other type of disaster.

Here are a couple of charts from the article.

Industrial production, capacity, and utilization



click on chart for sharper image



click on chart for sharper image

Durable goods, construction, and non-energy industrial materials are dropping sharply. Defense is going strong. Things might be a lot different under Obama given his stated desire to rebuild infrastructure and pull troops out of Iraq.

New York Manufacturing Index Falls to Minus 25.8

The Federal Reserve Bank of New York is reporting New York Manufacturing Index Falls to Minus 25.8

Manufacturing in New York contracted in December at the fastest pace on record as orders and shipments remained weak.

The Federal Reserve Bank of New York�s general economic index fell to minus 25.8, the lowest level since records began in 2001, from minus 25.4 in November, the bank said today. Readings below zero for the Empire State index signal manufacturing activity is shrinking.

Factories are scaling back production as consumers retrench in the face of a weaker job market and a recession that began a year ago. A deepening global credit crisis has hit overseas trading partners, undermining foreign demand for U.S. goods.

The New York Fed�s measure of new orders rose to minus 20.8 from minus 22.2 the prior month. A gauge of shipments increased to minus 8.8 from minus 13.9.

The report also showed inflation eased. The index of prices paid for raw materials decreased to minus 7.5 from 20.5 and the gauge of prices received dropped to minus 11.7, the lowest since July 2003, from 6.

A measure of employment rose to minus 23.4 from minus 28.9, the lowest reading since December 2001.

Prices paid are dropping and will continue to drop as year over year comparisons get easier. Deflation is here. Falling prices are a symptom of that deflation.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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FORBES.COM: Seven hours with Warren Buffett

Robert Lenzner 05.03.08, 5:35 PM ET, Forbes.com

The Berkshire Hathaway annual meeting was a classic example of shareholder meeting as farce. Incredibly, the seven-hour session before a record crowd of 30,000 had barely a mention of the financial crisis impacting markets worldwide for a year.

There were more questions about the dams on Oregon"s Klamath River shutting off the salmon run for Indian tribes than the damming up of the credit markets.

The word "recession" was never mentioned. "Inflation" only once. No one asked about the $1.6 billion loss Berkshire took on a derivative position in the last quarter. Not a soul inquired about the decline in Berkshire"s earnings. Buffett"s brilliant call in buying Brazilian currency (the real) never got a nod, even though Standard & Poor"s raised that nation"s credit to investment grade last week.

Nor did anyone raise the provocative theme put forth in Buffett"s letter to shareholders (See "Croesus, Buffett: New Advice From On High") that investors should not expect to earn on their common stock positions the modest 5.3% rate of return earned during the whole of the 20th century. Were none of the 30,000 shareholders alert enough to take the opportunity to ask Buffett what rate of return they could expect? After all, many small investors count on their Berkshire holdings as an important stake and nest egg.

"Anyone who wants us to repeat the past should sell [his or her] stock," said the Oracle of Omaha, without any follow-up questions from alarmed shareholders. Be fairly warned.

This passivity cannot be due to Buffett"s willingness to appear on a certain cable network nine times and another one five times since October 2007. This was a chance blown to find out how Buffett and Munger weighed the risks in the world.

It was Buffett"s acerbic partner Charles Munger who finally exclaimed that "we are having convulsions that make Enron look like a tea party. We will have changes in regulation but they won"t work perfectly." No one asked Munger what changes he saw on the horizon. Later on the 84-year-old Los Angeles lawyer described the convulsion as "a huge dislocation that was very extreme but very brief. It"s interesting how brief these opportunities are."

Nevertheless, Berkshire was able to accumulate a $4 billion position in auction rate notes when that market froze up some weeks ago. It included the short-term debts of the nonprofit Los Angeles County Museum of Art at interest rates of 8% to 10%--triple the 3% to 4% the same notes sold for in January. Perhaps it was this opportunity that Munger chose to describe in his no-holds-barred style--"some idiot hedge fund bought municipal bonds on incredible margin. These things were disposed on a margin call," meaning that the fund had to sell because it didn"t have the capital to support its position.

After a lunch break, Buffett finally got in some licks at the regulator of Fannie Mae (nyse: FNM - news - people ) and Freddie Mac (nyse: FRE - news - people )--Office of Federal Housing Enterprise Oversight--for allowing accounting irregularities to go on for some time. Buffett, who describes himself as "the chief risk officer" of Berkshire, also slammed the large commercial and investment banks as both too big to manage and too big to fail, according to the government. He reckoned that the failure of Bear Stearns (nyse: BSC - news - people ) would have caused the failure of "another investment bank or two going down in a day or two."

The panic would have been caused by financial institutions "trying to undo $14.5 trillion [worth of] derivatives contracts in just hours, not days or weeks. Hardly anyone caught Buffett"s words when he muttered that "to some extent it"s an evil culture." The evil culture he was talking about was Wall Street, the commercial and investment banks who had no idea that their risk models were utterly useless. "They didn"t have the faintest idea what risks were involved," he said.

As for politics, Buffett, a Democrat, said all three candidates are intelligent. But he scoffed at the way both Clinton and Obama "ask for an excess profits tax on Exxon"--but not on the farmers getting rich off the boom in commodity prices. Munger added that "while we don"t like inflation because it"s bad for our country, we"ll probably make more money over time because there is inflation."

On oil prices, Buffett predicted that production will level off and then start to decline, which will tend to put a floor under the price of oil. His politically incorrect partner Munger declared that "in the 1930s [when oil was first discovered in the Middle East] we should have taken the oil out of the Middle East and put it in the ground" in the U.S. "Eventually," Munger predicted, "we"ll have to use the sun for our power."

On a lighter note, the high point of the meeting was a cartoon film that had Munger being elected president on the Financially Independent ticket--and naming Buffett secretary of commerce, secretary of the Treasury and chairman of the Federal Reserve all at once. In a serious vein, Buffett later said his inclination would be to raise taxes on the super-rich (himself included, of course) and lower them on the middle class, a position shared by both of the Democratic candidates.

As for the stock market, Buffett, made it crystal clear that "Charlie and I haven"t the faintest idea where [it"s] going."

More from Croesus in Omaha Sunday. Stay tuned. If you have any questions for Warren, send them along in the comments below.

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