Warren Buffett's 1Q09 Portfolio Shake 'N Bake

During the first quarter of 2009, Warren Buffett's insurance holding company, Berkshire Hathaway (BRKA or BRKB), made the below-listed investment CHANGES to its massive $38 Billion stock portfolio. Per financial statements published by the company along with its 1Q09 earnings report, BRKA continues to hold about $26 Billion in CASH on its balance sheet. Since Berkshire owns roughly $96 Billion in total investment assets, Mr. Buffett is sporting a cash position of 27% relative to his total investments portfolio. Lastly, with specific regard to his 1Q09 portfolio activity, it's interesting to note that Mr. Buffett did not feel the need to add any NEW names (new positions) to his equity portfolio during the three month period in which the S+P 500 index declined by 12%.

INCREASED Stakes:

* Burlington Northern (BNI) stake increased 9.5% to 76,777,029 shares from 70,089,829 shares.

* Johnson & Johnson (JNJ) stake increased 13.6% to 32,508,891 shares from 28,611,591 shares.

* Nalco Holding (NLC) stake increased 3.0% to 9,000,000 shares from 8,739,100 shares.

* US Bancorp (USB) stake increased 2.2% to 69,039,426 shares from 67,551,426 shares.

* Union Pacific (UNP) stake increased 7.3% to 9,558,000 shares from 8,906,000 shares.

* Wells Fargo (WFC) stake increased 4.3% to 302,609,212 shares from 290,244,868 shares.

DECREASED Stakes:

* Carmax (KMX) stake decreased 32.0% to 12,000,000 shares from 17,636,500 shares.

* ConocoPhillips (COP) stake decreased 10.8% to 71,228,096 shares from 79,896,273 shares.

* Constellation Energy (CEG) stake decreased 25.5% to 14,828,207 shares as of March 31 from 19,894,322 shares on December 31. The stake has since decreased to 12,476,154 shares as of May 12.

* UnitedHealth Group (UNH) stake decreased 28.6% to 4,500,000 shares from 6,300,000 shares.

http://www.berkshirehathaway.com/qtrly/1stqtr09.pdf

http://www.cnbc.com/id/30766396//


Data Courtesy: Berkshire Hathaway + CNBC
Full Disclosure: I own shares of COP.

U.S. Bank Stress Test Assumptions + RESULTS

On Thursday, May 7th, 2009, the U.S Federal Reserve FINALLY unveiled its long-awaited, eagerly-anticipated 'Stress Test' (i.e: the Supervisory Capital Assessment Program) results performed on the country's 19 largest financial institutions. These 19 banks each hold assets of at least $100 Billion and, collectively, are believed to represent about 2/3 of the total assets contained in the entire U.S. Banking system.

Of the 19 U.S. commercial banks tested, 10 banks FAILED and will now need to raise a total of about $75 Billion in additional capital by November of this year. The 3 largest Bank Stress Test LOSERS are: Bank of America/BAC (needs to raise $33.9 Billion in capital), Wells Fargo/WFC (needs to raise $13.7 Billion), and the former wholly-owned financial services arm of General Motors (GM), GMAC/GJM (needs to raise $11.5 Billion).

One of the Treasury's primary litmus tests for the stress tests it conducted revolved around an interesting accounting metric known as Tangible Common Equity or TCE. Tangible Common Equity is designed to indicate how much 'ownership equity' owners of common stock would actually receive in the event of a company's forced liquidation. According to Wikinvest, TCE intends to remove the more subjective components of valuation (intangible assets and goodwill) from the calculation of a company's underlying worth. The accounting formula for the TCE ratio is a company's Total Shareholders Equity MINUS its Intangible Assets (non-physical assets on a company's balance sheet - exp's include: intellectual property, brand recognition), Goodwill (the premium paid by an acquiring company over and above the acquired company's Tangible Book Value) and Preferred Stock as a percentage of Tangible Assets. During the stress tests, the U.S. government made it clear that it strongly urges all 19 commercial banks to maintain a TCE of at least 4% moving forward.


Due to uncertainty regarding the future macroeconomic environment, the Federal Reserve tested the TCE of each of the 19 banks under 2 different economic scenarios - 1.) 'Average Baseline' and 2.) 'Alternative More Adverse'. Per the above chart, the more optimistic 'Average Baseline' case carried the following assumptions for 2009: -2% GDP 'growth', 8.4% unemployment and a 14% decrease in nationwide housing prices. Meanwhile, the 2009 assumptions used by the more pessimistic 'Alternative More Adverse' view were: -3.3% GDP 'growth', 8.9% unemployment and a 22% decline in housing values.


Lastly, it should most certainly be noted that the April's U.S. jobs/payrolls report was released this past Friday and the country's unemployment rate currently stands at 8.9% - already exactly matching the more pessimistic unemployment assumption used in the 'Alternative More Adverse' scenario. According to Dean Baker of the American Prospect, a healthier or more realistic assumption for the country's unemployment rate in 2009 would be 9.4%. It should also be noted that per the above S+P Case/Schiller nationwide 10 city housing prices index graph, the current real decline in 2009 housing prices has also ALREADY virtually matched the housing assumption used in the 'Alternative More Adverse' scenario. Furthermore, most 'experts' believe housing prices will continue to decline in 2009 and probably finish the year down by about 24-25%. As a result and anecdotally thinking, it looks like the assumptions used by the Federal Reserve in their 'Average Baseline' scenario are entirely too optimistic (14% decline in housing??) and disingenuous at best. Meanwhile, the assumptions employed in the 'Alternative More Adverse' scenario don't seem to be pessimistic enough unless the U.S. economy rebounds sometime during the 2nd half of 2009.


marketwatch.com/news/story/Stress-tests-see-possible-600/

http://www.wikinvest.com/metric/Tangible_Common_Equity_(TCE)

prospect.org/csnc/blogs/name=background_on_the_stress_tests


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BANK Stress Test RESULTS - Scorecard :


10 Banks That FAILED (Ticker) - Capital Needed :
* Bank Of America (BAC) - $33.9 Billion
* Wells Fargo (WFC) - $13.7 Billion
* GMAC (GJM) - $11.5 Billion
* Citigroup (C) - $5.5 Billion
* Regions Financial (RF) - $2.5 Billion
* Suntrust Financial (STI) - $2.2 Billion
* Morgan Stanley (MS) - $1.8 Billion
* Keycorp (KEY) - $1.8 Billion
* Fifth Third Financial (FITB) - $1.1 Billion
* PNC Financial (PNC) - $0.6 Billion

9 Banks That PASSED (Ticker):
* Goldman Sachs (GS)
* JP Morgan (JPM)
* US Bancorp (USB)
* Metlife (MET)
* American Express (AXP)
* Bank Of New York Mellon (BK)
* State Street (STT)
* Capital One Financial (COF)
* BB&T Corp (BBT)


http://www.cnbc.com/id/30626465/


Data Courtesy: Marketwatch, CNBC + The American Prospect
Full Disclosure: I own shares of GS.

Keeping Tabs On $700 Billion Of TARP

Check out the below informative New York Times link Tracking the $700 Billion worth of funds being ALLOCATED by the U.S. Treasury Department via its controversial Troubled Asset Relief Program (TARP) :

nytimes.com/creditcrisis/recipients/table


* Top 10 Banking TARP Customers :
1. Citigroup (C) - $45 Billion (marketcap = $45 Billion)
2. AIG (AIG) - $40 Billion (mcap = $5B)
3. JPMorgan Chase (JPM) - $25 Billion (mcap = $118B)
4. Wells Fargo (WFC) - $25 Billion (mcap = $96B)
5. Bank Of America (BAC) - $15 Billion (mcap = $82B)
6. Goldman Sachs (GS) - $10 Billion (mcap = $31B)
7. Merrill Lynch (MER) - $10 Billion (mcap = $21B)
8. Morgan Stanley (MS) - $10 Billion (mcap = $16B)
9. PNC (PNC) - $7.7 Billion (mcap = $18B)
10. U.S. Bancorp (USB) - $6.6 Billion (mcap = $47B)


* Top 10 customers account for almost 30% (28% or $195 Billion) of total TARP funds...Citigroup and AIG alone account for over 12% of total TARP spending


* About $410 Billion in total TARP funds remain UNALLOCATED (approx 60%)


Data Courtesy: NY Times
Full Disclosure: I own shares of GS.

Buffett's Largest ENERGY Bet - Conoco

According to Berkshire Hathaway's (BRKA) recently disclosed 3rd Quarter 2008 13F SEC Filing, Warren Buffett currently owns 84 million shares of U.S. Oil + Gas producer Conoco Phillips (COP). As a result, Conoco now represents Buffett's LARGEST Energy sector holding and his 5.6% stake makes him the $70 Billion oil company's LARGEST shareholder.


http://www.cnbc.com/id/27723341


Per the above link:
* Conoco Phillips is Berkshire's LARGEST energy sector holding and now accounts for about 7.3% of Berkshire's total U.S. stock portfolio

* Berkshire held 'only' 17.5 million shares of COP as recent as March 31st, 2008...meaning that Buffett's position in Conoco has increased nearly FOUR-fold in just over 6 months (!)

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Per Berkshire's 3Q08 13F SEC Filings :

* Buffett reduced stock holdings in: Bank of America (BAC), Carmax (KMX), Home Depot (HD), Lowe's (LOW), United Health Group (UNH), Wells Fargo (WFC) and Wellpoint (WLP)


* Buffett increased stock holdings in: Conoco Phillips (COP), Eaton Corporation (ETN), NRG Energy (NRG), US Bancorp (USB) and Comdisco (CDCO)


* Berkshire's CASH holdings as of 9/30/08 were $33.4 Billion (vs. $47.1 Billion a year ago)

Data Courtesy: CNBC.com
Full Disclosure: I own shares of COP and UNH.

Warren BUFFETT Ch-Ch-Chooses GOLDMAN

Warren BUFFETT, the uber-BILLIONAIRE and CEO of Berkshire Hathaway (BRK.A or BRK.B), must be an avid reader of this blog. How else can you explain his recent purchase of 'bank-holding' company Goldman Sachs (GS)?? I (wrongfully but still gleefully) credit my 8/27/08 post titled 'RTOB: Six Reasons to BANK on Goldman' for showing the 'Oracle of Omaha' the light. UNwarranted and completely nonsensical boasting aside, here are some of the intriguing details behind Warren's newly acquired 10% stake in Goldman Sachs :


* Berkshire Hathaway Inc. agreed yesterday to a $5 Billion preferred stock investment in Goldman...this will immediately provide Berkshire a 10% interest in GS (effectively valuing GS at $50 Billion...fyi, at $129/share the current marketcap of GS is $51 Billion)


* Buffett also reserves to the right to buy an additional $5 Billion in GS common stock sometime during the next five years at $115 a share.(anecdotally thinking...looks like he is getting an Amazing deal here)

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* FYI + During these turbulent times, Buffett's been pretty busy in terms of putting his $40 Billion of CASH into the markets as Berkshire has announced 9 acquisitions since October 2007, compared with 6 in the prior 12 months, when his largest deal was $350 million to buy VF Corp. (VFC), an underwear and pajama maker


* By mid-2008 (note, not 'through' 2008), Buffet's cash holdings have officially declined to $31.2 Billion from $44.3 Billion at the end of 2007.


* This year, Buffetts' Largest Deals include:
1.) $4.5 Billion purchase of Marmon Holdings Inc., the Pritzker family's collection of 125 companies, in March
2.) $4.7 Billion bid this month for Constellation Energy Group (CEG), the largest U.S. power seller
3.) Buffett also provided $6.5 Billion in April to help Mars Inc. buy Wrigley (WWY), giving Berkshire a stake in the chewing gum maker.
4.) Buffett also pledged $3 Billion in July to Dow Chemical Co.'s (DOW) $15.4 Billion takeover of Rohm & Haas Co. (ROH)


* Buffett's other $IGNIFICANT FINANCIAL stakes include:
1.) Wells Fargo (WFC - 9% stake)
2.) US Bancorp (USB - 4% stake)
3.) American Express (AXP - 13% stake)
4.) Wesco Financial (WSC - 80% stake)
5.) Moody's Corp. (MCO - 20% stake...even the greatest get it wrong sometimes)
* Buffett's Berkshire Hathaway is the Largest Shareholder for these 5 companies


* Buffett also owns less significant stakes in other financials including: Bank of America (BAC - 0.2% stake), M&T Bank Corp. (MTB - 6% stake) and Suntrust Bank (STI - 1% stake)

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Random
Thoughts
Of Brilliance: In this chaotic market the PSYCHOLOGY of shareholders matters perhaps more than anything else. Even though Goldman is giving Berkshire a bargain on its shares (I'm referring to the follow-up $5 Billion stake at $115/share), you CANNOT underestimate the psychological importance of being able to tell the investing public that Warren Buffett, arguably the world's $aviest investor of ALL TIME, is firmly behind your company and stock. I think this is a GREAT move for shareholders of both Goldman and Berkshire. Lastly, it will also be interesting to see how shares of GS react in the next 6 months to a year...wonder if this move by Buffet will end up marking the bottom in GS shares.


bloomberg.com/apps/news?pid=conewsstory&refer=conews&tk

http://www.cnbc.com/id/22130601/


Data Courtesy: Bloomberg + CNBC.com
Full Disclosure: I own shares of GS.