Editor's note: To listen to Porter's radio interview with Roger Hedgecock from last night, please click here. His segment begins 19 minutes into the program.
For years now, it's been clear Berkshire Hathaway founder/CEO Warren Buffett loves David Sokol, the chairman of MidAmerican Energy. Berkshire acquired the Midwestern electric utility in October 1999. Since then, Buffett has consistently praised Sokol's abilities... extolling him in every shareholder letter since 2002.
The most famous example of Sokol's managerial prowess – and of Buffett's confidence in it – was his turnaround of NetJets. Buffett ousted NetJets founder Rich Santulli in August 2009 and replaced him with Sokol, who cut the company's debt by $1.4 billion and made it profitable.
For all his accomplishments and Buffett's recognition of them, Sokol was thought to be the No. 1 choice to succeed Buffett as CEO of Berkshire.
What we didn't know was, Buffett twice had to talk Sokol out of resigning. The third time's the charm. Sokol resigned from Berkshire Hathaway yesterday – this time with Buffett's blessing. It turns out Sokol wants to run his own company and never wanted to head Berkshire Hathaway.
Surprising as Sokol's departure is... it's even more surprising to find out Sokol appears to have front-run a Berkshire Hathaway acquisition. Sokol bought 96,060 shares of Lubrizol and then told Buffett to buy the company. Buffett turned him down initially, but finally agreed to buy it. Sokol made about $3 million on a $10 million investment in Lubrizol shares.
Both men assert Sokol did nothing illegal and deny the transaction has anything to do with his resignation. In his March 28 resignation letter, Sokol cites his desire to invest his "family's resources in such a way as to create enduring equity value and hopefully an enterprise which will provide opportunity for my descendants and funding for my philanthropic interests."
Mr. Market doesn't like Sokol's departure. Berkshire Hathaway shares are down 2% today... which strikes me as a little silly. I bet Buffett's second or third choice to succeed him would still be better than 90% of the CEOs out there today. Berkshire is loaded with cash-gushing businesses. The worst that could happen is it starts paying a dividend. Even if it stopped growing, it would still continue to create enormous shareholder value. The folks selling today are the typical, short-run mentality types. We think you should stay in.
We've long argued Federal Reserve money-printing is the definition of inflation... and the current rise in stock and commodity prices is artificial. It's a simple concept. The Fed created trillions of dollars that must go somewhere. Take a look at this chart – created by S&A's quantitative researcher Brett Eversole – showing that the expansion of the Fed's balance sheet sparked the rally in stocks and commodities. Note how little correlation existed before the government started quantitative easing.
It reminds me of how virtually every market in the world fell in tandem in 2008. That's what you get when the world is awash in funny money. I'm talking about funny money in any form, whether it's blatant money-printing or low interest rates or some other financial legerdemain executed by the Chairman of Counterfeiting and Currency Destruction.
It also makes me wonder why it's so vital to our national interest that we preserve, protect, and grow the wealth of the speculative classes: the hedge funds, Wall Street bankers, and others who make a living gaming the Fed's largesse. Would the country be so bad off if they all had to get jobs? They're a bunch of Ivy Leaguers. Certainly, they could improve the service at Applebee's, invent the next McWhatever Meal, or come up with a more pleasant and still cost-effective interior design at Wal-Mart... Or maybe they could all become landlords in Las Vegas. I bet if they descended on it tomorrow, the housing market there would bottom out and recover nicely... until they speculated it into the next hole.
On second thought, maybe we should just padlock and fumigate lower Manhattan.
Not only has Bill Gross sold all his Treasury bonds and warned of inflation (see the End of America box below)... but now, Wal-Mart CEO Bill Simon says inflation "is going to be serious... We're seeing cost increases come through at a pretty rapid rate."
Think about Bill Gross and Bill Simon. Gross manages the biggest bond fund on the planet. He has zero incentive to tell you inflation is coming. Inflation crushes his business. Simon's customer makes less than $40,000 a year. Inflation will hurt that poor guy and his family more than it'll hurt anyone else. This is the last thing he wants to see.
Think about this: Simon says, "We're seeing cost increases coming through at a pretty rapid rate." Wal-Mart sucks costs out of the system better than anyone. It passes savings along to customers better than anyone. So what happens to all the other retailers as higher costs trickle in throughout the year? They'll have to raise prices, but they won't be able to raise their way out of this. There's only so much consumers can take. John Long, an analyst at management consulting firm Kurt Salmon, says, "No retailer is going to be able to wish this new cost reality away. They're not going to be able to insulate the consumer 100%."
Get ready, compadre. Our lives are about to get more expensive... again.
Fed-created inflation is taking over the economic landscape. It's impossible to invest a penny these days without coming up with a good answer to the question, "What will inflation do to this investment?"
Here's an investment that answers that question as well as it can be answered...
Today is your last day to learn about one of our favorite junior gold mining stocks. It's a tiny company. And few people know it exists. We believe this stock will at least double your money. How can we be so sure? We've recommended six other stocks like this one in the last 16 months... And every one has made money. Five of the six more than doubled. Our biggest gain so far is 542%.
As you know, junior resource stocks are volatile. While some of these stocks jump hundreds, even thousands, of percent, the majority fail. That's why our six-for-six win streak is so incredible. We've developed a system that tells us exactly when to buy certain junior miners. (Keep in mind, we only apply this timing system to stocks we know hold huge reserves.)
Longtime Digest readers know buying junior resource stocks in the midst of a commodity bull market is one of the easiest and fastest ways to get rich. And our system removes the guesswork. You see, we wait until after a junior miner proves it is sitting on top of a huge deposit. As you'd expect, the stock rallies after this announcement. But then the company goes quiet. And it works to further prove the strength of its reserves.
Two things happen during this quiet period. First, investors lose interest in the company. Excitement subsides. Second, the stock's price either stays flat or declines. That's when we buy.
Like I said, we've been watching one of our favorite junior gold mining stocks... And it's in the middle of a quiet period. It's the perfect time to buy.
Tonight, we're hosting a conference call with the CEO of this company. He'll give listeners all the important information about his company. But to access the call, you must sign up for Phase 1 now. And if you sign up for this research before midnight tonight, we'll give you a 40% discount. To learn more, click here...
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New 52-week highs (as of 3/31/11): First Trust Dow Jones Select MicroCap (FDM), Westport Innovations (WPRT), Coca-Cola (KO), Automatic Data Processing (ADP), W-D 40 (WDFC), CARBO Ceramics (CRR), HMS Holdings (HMSY), Molina Healthcare (MOH), iShares Silver (SLV), ConocoPhillips (COP), EV Energy Partners (EVEP), Magnum Hunter Resources (MHR), SandRidge Energy (SD), Tejon Ranch (TRC), SVB Financial (SIVB), Philip Morris International (PM).
How have you been hit by inflation? Have you stopped buying certain items? Do you eat out less? Has your life changed in any way due to the high cost of energy, food, clothing, and other essentials? Tell us your story... Or tell us someone else's story. Write us at feedback@stansberryresearch.com.
"I tried to watch the ad on YouTube w/o success. Why don't you have a direct link to it?" – Paid-up subscriber Martha
Goldsmith comment: We include a link to the End of America video in every Digest (at the bottom of the End of America box). In case you still can't find it, here's the link.
Regards,
Dan Ferris and Sean Goldsmith
Medford, Oregon and Baltimore, Maryland
March 31, 2011
Buffett's No. 1 is out... Graph: The Fed's new bubble... On fumigating Manhattan... Simon says 'serious' inflation... New gold stock... Bill Gross: 'The U.S. will default'...