by Matthew.

The exciting rally of the last few weeks persisted in part because the government and the Fed’s announcements of optimism and detailed plans to shore up the American financial system have given investors a sense of confidence. Confidence in America’s political stability and the rule of law in protecting economic transactions has long been a pillar that held and still holds up the American economy. It is a mistake to allow that pillar to fall into disrepair.

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by Bryce

Ultra ETFs have become extremely popular for the average investor. They allow investors the ability to utilize leverage in favor or against a certain underlying index. Previously, an investor would have to rely on more complicated options strategies that have finite time frames or futures contract that bear substantially more risk. One very important aspect of these leveraged ETFs is that they provide twice the daily movement. Over the a period of a few days, this does NOT translate into a 2:1 return on the underlying index. 

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by Matthew Lu.

Though lacking Karl Marx’s sense of the dramatic (not to mention the metaphysical), your correspondent is nonetheless concerned that Mexico has retaliated to the US’ protectionism by imposing tariffs.

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by Matthew Lu.

Bryce’s graph may be eerily prescient. We will see how closely we follow the trend of the Great Depression. Ben Bernanke, the Chairman of the Federal Reserve, is a student of history and specializes in the Great Depression; he is intimately familiar with the mistakes made by the Federal Reserve (or, more specifically, by the New York Federal Reserve while in the midst of a power struggle with the Board of Governors) leading up to the bank runs of 1931.

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While history doesn’t tend to repeat itself exactly, the following chart is quite revealing. If we continue to mirror past action, expect one more leg down to establish the lows. 

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Thats right. Berkshire Hathaway has had its debt rating cut by Fitch. Are you kidding! I predicate that there is hardly an institution more culpable for the “economic crisis” than the rating companies. They essentially gave the green light for the whole thing to take place by rating sub-prime mortgages as “AAA.”  Only companies with strong balance sheets and solid cash flow deserve such a rank, not pieces of junk sliced up and repackaged. Now I’ve gotten myself sidetracked. Berkshire had $25 billion in cash at the end of the quarter. Buffett has stated multiple times that he would feel uncomfortable with less than $10 billion incase of any ‘acts of god’ (it is an insurance and reinsurance company after all). Does this sound like a company in trouble? The largest concerns about Berkshire relate to its use of derivatives. As I will explain, while they do add a bit of risk, there is always a trade off between risk and reward and Buffett has found a win-win for Berkshire over the long term. 

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I don’t have the time to fully expound on my thoughts at the moment and provide a thorough analysis, however I recently discovered an attractive company that will require a bit of homework before being able to make an investment. The company is Thompson Creek Metals (TC) and specializes in the production of molybdenum. Molybdenum is used primarily as an alloying agent to enhance the strength, toughness and corrosion  resistance of steel. The company is trading at a very attractive price, has little debt and is one of the world’s largest producers giving it an ample moat. When the world economies rebound and industrial demand is strengthened, Thompson Creek Metals should benefit handsomely. 

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I would suggest any person interested in value investing consider reading Berkshire Hathaway’s annual letter. A good link to other commentary on the annual letter can be found on here. As always it is a fairly optimistic analysis of  the years to come with a little grandfatherly advise tossed in. Buffet has always measured the value of Berkshire in terms of book value. Last year there was a decline in book value for Berkshire of 9.6% compared with the S&P of 27.4% which ranks as the best relative performance in 6 years. 

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Rick Santelli’s Rant