Economic Calendar

Sunday, February 26, 2012

Santorum: Romney Tax Plans Echo Protesters

By John McCormick and Tim Higgins - Feb 26, 2012 12:00 PM GMT+0700

Republican presidential primary hopeful Rick Santorum said rival Mitt Romney’s promotion of tax proposals that limit deductions of top income earners is echoing the message of Occupy Wall Street protesters.

“We have a Republican running for president who’s campaigning as an Occupy Wall Street adherent,” Santorum said yesterday, referring to protesters who have camped in New York, Washington and elsewhere and argue that the top 1 percent of income earners should pay more in taxes.

Santorum’s comments came before two primaries this week in Michigan and Arizona that may reshape the race. Both men received friendly welcomes at a forum in Troy, Michigan, sponsored by Americans for Prosperity, an organization aligned with the Tea Party, a grassroots group that opposes new federal government taxes.

Romney highlighted Santorum’s support for former Pennsylvania Senator Arlen Specter, a Republican who switched to the Democratic Party in 2009.

“He supported the pro-choice candidate, Arlen Specter,” Romney said. “This taking one for the team -- that’s business as usual in Washington. We have to have principled, conservative leadership and I have demonstrated that through my life and demonstrated it as a governor.”

Santorum, 53, told about 150 people in St. Clair Shores that Romney “doesn’t understand how America works.”

Trust Issue

Romney, 64, ran for the U.S. Senate in Massachusetts as a liberal, for governor in the same state as a moderate and now as a conservative for president, Santorum said.

“This is an issue of trust,” he said. “If you can’t trust him to campaign on what he did, imagine what he’s going to do when he’s in the general election.”

Santorum called U.S. Representative Ron Paul of Texas, another presidential candidate campaigning in Michigan this weekend, the “wing-man” for Romney and suggested that the two were coordinating attacks against him in the Feb. 22 Arizona debate.

At a stop in Flint, Romney took a swipe at Santorum over something he said during the debate in Arizona.

“Senator Santorum said something that I think jarred a lot of people,” Romney told a crowd of several hundred gathered in the recreation center of Kettering University. “He had mentioned that he voted for something that he didn’t agree with and he said he did it because now and then you have to take one for the team in Washington.”

Romney added: “And I thought, ‘No, it’s about time we have someone go to Washington that takes one for the American people, not the partisan team.’”

Wall Street Bailouts

Santorum, in Troy, said Romney supported government bailouts for Wall Street banks while opposing them for automakers, as he presented himself as a more consistent politician.

“What you see is what you get, as opposed to, well, what you see today may be something different than what you get tomorrow,” he said. “I will be the strong, consistent conservative.”

Polls show a close race between the two in Michigan (BEESMI), while Romney leads in Arizona (BEESAZ), which will also hold a Feb. 28 primary. A Romney loss in Michigan, where he spent his boyhood and where his father, George Romney, served as governor and an automobile company chief executive, would be a blow to his candidacy.

The two contests will help determine who has the momentum heading into so-called Super Tuesday on March 6, when 11 states will hold primaries. More than 400 of the 1,144 delegates needed to win the nomination will be at stake.

Principled Conservative

In Troy, Romney used Santorum’s own words against him, as he pointed to how the former Pennsylvania senator endorsed his 2008 presidential campaign and called him the “clear conservative” candidate in the race.

“He’s right,” Romney said. “I’m the conservative candidate and what we need in the White House is principled, conservative leadership.”

Romney also criticized Santorum for votes he cast that sent federal funding to Planned Parenthood and funded a family planning program for low-income women, as well as his support for parochial projects attached to congressional spending bills.

“He was opposed to Planned Parenthood funding and Title X funding, but he voted for it,” he said. “He stood and described how he favors earmarks.”

Auto Industry

Romney spoke in Lansing on government bailouts for General Motors (GM) Co. and Chrysler Group LLC, a topic that’s especially sensitive in the state that is home to both. He said the federal rescue is an example of “crony capitalism” that overly benefited the United Autoworkers Union. He linked that to the Obama administration’s federal loans to failed solar panel manufacturer Solyndra LLC and electric carmaker Fisker Automotive Inc.

“The right course for America is not to have a president to take your money to give it to his friends, but instead to let the free market choose those that have the greatest prospect for success,” Romney said in Lansing.

Santorum mocked Obama during his appearance in Troy.

“President Obama once said he wants everybody in America to go to college. What a snob,” he said to cheers and applause.

Obama “wants to remake you in his image,” he said. “I want to create jobs so people can remake their children in their image not his.”

Tea Party Forum

Later yesterday, Santorum spoke in a mostly full church auditorium that sat 3,200 as part of a Tea Party forum in Tennessee, a Super Tuesday state. He said in Chattanooga that the party needs to pick someone who will provide a stark contrast with Obama, something he said Romney wouldn’t do.

Santorum said Romney’s proposed tax plan, including limiting charitable deductions for wealthy Americans, was “exactly the proposal that Barack Obama put forward.” Santorum accused both Romney and Obama of robbing churches, nonprofit groups, schools and hospitals of a substantial source of income.

“Both of them now want to take the incentive to give to the organizations that allow these community institutions to survive,” he said.

In California, former U.S. House Speaker Newt Gingrich campaigned ahead of that state’s June 5 primary.

“If you would rather have a paycheck instead of food stamps, you want to be with us,” he said at the California State Republican Party Convention outside San Francisco.

To contact the reporters on this story: John McCormick in Chicago at; Tim Higgins in Detroit at

To contact the editor responsible for this story: Jeanne Cummings at


Two U.S. Troops Killed at Afghan Ministry, Prompting NATO to Pull Advisers

By Viola Gienger and Eltaf Najafizada - Feb 26, 2012 5:51 AM GMT+0700

The U.S.-led coalition in Afghanistan withdrew all international military personnel from Afghan government ministries in Kabul yesterday after two more Americans were killed on the fifth day of violent protests over the burning of the Koran at a coalition military base.

The two, a lieutenant colonel and a major, were both shot in the back of the head in the heavily guarded Interior Ministry, according to Western officials who spoke on condition of anonymity because they weren't authorized to disclose the information. The Taliban claimed responsibility, saying it was retaliation for the burning of the Muslim holy book.

White House Press Secretary Jay Carney’s office said in a statement that “the United States remains committed to a partnership with the government and people of Afghanistan.” Still, the killings raise new doubts about the administration’s claim of progress in Afghanistan and the chances for accelerating withdrawal of U.S. combat forces from the country.

Ahead of meetings scheduled this week in Washington with the Afghan defense and interior ministers and a NATO summit in May in Chicago, the violence also threatens to undermine the foundation of the administration’s Afghan policy -- training the Afghan National Army, National Police and some local forces to take over from coalition troops by the end of 2014.

The killings, along with a pending U.S. apology for the deaths of 24 Pakistani soldiers in a mistaken air strike last November, also may fuel intensified Republican criticism of administration foreign policy. Republican Newt Gingrich already has called President Barack Obama’s apology for the Koran burning at Bagram air base a signal of American weakness.

Commander’s Statement

Obama called Marine General John Allen, the commander of U.S. forces and the NATO International Security Assistance Force in Afghanistan, “to discuss the ongoing violence in Afghanistan and the tragic killing of two U.S. servicemembers,” according to a statement yesterday from the White House press secretary’s office.

“We are investigating the crime and will pursue all leads to find the person responsible for this attack,” Allen said in a statement Feb. 25. “For obvious force protection reasons, I have also taken immediate measures to recall all other” coalition personnel working in ministries in and around the Afghan capital, he said.

The U.S. condemns the killing of the American officers “in the strongest possible terms,” said George Little, a spokesman for the Pentagon.

Condolences Offered

Afghan Interior Minister Bismullah Khan Mohammadi offered his condolences to the families of the two officers and his apologies in a meeting with Allen today, Little said. Afghan Defense Minister Abdul Rahim Wardak did the same during a telephone conversation with U.S. Defense Secretary Leon Panetta, Little said.

“Secretary Panetta appreciated the call and urged the Afghan government to take decisive action to protect coalition forces and curtail the violence in Afghanistan after a challenging week in the country,” Little said. “Minister Wardak said that President Karzai was assembling the religious leaders, parliamentarians, justices of the Supreme Court, and other senior Afghan officials to take urgent steps to do so.”

The killings in the Interior Ministry were the latest attack on foreign military forces in Afghanistan and civilians advising Afghan government personnel. Two U.S. soldiers were shot February 23 by a man in an Afghan army uniform, Ahmed Zia Abdulzai, the government spokesman in the eastern province of Nangarhar, said this week.

Similar Attacks

Afghan troops, police or security guards have killed about 70 troops or other personnel of the U.S.-led international forces in Afghanistan in 46 attacks since 2007, according to U.S. Defense Department figures prepared for a Feb. 1 congressional hearing.

The violence probably won’t prevent this week’s scheduled talks with Afghan officials, said Michael O’Hanlon, director of research at The Brookings Institution, a Washington policy research organization. That the current crisis isn’t the first is all the more reason to plow ahead, he said in an e-mail.

“This war is a slog, but the Afghan army is getting better as are the police, despite what has happened,” O’Hanlon said. “Thankfully, we aren’t planning to stay forever and are already on a downward trajectory.”

To contact the reporters on this story: Viola Gienger in Washington at; Eltaf Najafizada in Kabul at

To contact the editor responsible for this story: John Walcott at


Berkshire Profit Declines 30% on Derivatives

By Andrew Frye and Noah Buhayar - Feb 26, 2012 12:43 AM GMT+0700

Berkshire Hathaway Inc. (BRK/A) said fourth- quarter profit fell 30 percent on smaller gains from Warren Buffett’s portfolio of derivatives.

Net income declined to $3.05 billion, or $1,846 a share, from $4.38 billion, or $2,656, a year earlier, Omaha, Nebraska- based Berkshire said today in its annual report.

Buffett, Berkshire’s chairman and chief executive officer, is investing in stocks and acquisitions as operating units generate cash. Derivatives bets, made in prior years on long- term gains in stocks and the solvency of borrowers, produced more than $2 billion of profit in the fourth quarter of 2010.

“These are contracts that don’t expire for another 10 or 15 years and might fluctuate a lot every quarter,” said David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business. Buffett is “not really bothered by the volatility short term,” said Kass, in an interview before results were released.

Berkshire has slumped 4 percent in New York in the last 12 months, compared with a gain of 4.6 percent for the Standard & Poor’s 500 Index.

The gain from equity index puts dropped to $350 million in the last three months of 2011 from $2.49 billion a year earlier. The contracts are tied to four stock indexes including the S&P 500, which rose 11 percent in the period, and the Nikkei 225 Stock Average, which fell 2.8 percent. Liabilities narrow when equity benchmarks rise, and the fluctuations are recorded each quarter in Berkshire’s income statement.

Credit-Default Contracts

Losses from credit-default contracts, in which Buffett bets on the ability of borrowers to repay debt, widened to $216 million from $157 million a year earlier. Some fourth-quarter results were calculated by subtracting figures for the first nine months from the full-year data provided today.

Berkshire’s cash hoard increased to $37.3 billion on Dec. 31 from $34.8 billion three months earlier. Buffett, 81, drew down funds in the third quarter to purchase engine-additives maker Lubrizol Corp. for about $9 billion and accumulate an equity stake in International Business Machines Corp. Berkshire had $38.2 billion in cash at the end of 2010.

Book value, a measure of assets minus liabilities, rose in the last three months of 2011 to $164.9 billion from $160 billion on Sept. 30, and $157.3 billion at the end of 2010. Full-year net income slipped to $10.3 billion from $13 billion in 2010.

Burlington Northern

Acquisitions have given Berkshire more than 70 operating units that produce energy and chocolate, operate planes and trains, and insure against car wrecks and earthquakes. Berkshire’s investment portfolio generates income by collecting dividends and bond coupons. The firm is the biggest equity investor in Coca-Cola Co. (KO) and Wells Fargo & Co.

The stock portfolio was valued at $77 billion at the end of the fourth quarter, up from $68.1 billion on Sept. 30 as American Express Co., ConocoPhillips and IBM climbed in New York trading. Berkshire spent $4.31 billion on equities and $1.24 billion on fixed-maturity securities in the quarter.

Buffett’s biggest takeover, railroad Burlington Northern Santa Fe, was completed in 2010 in a $26.5 billion transaction. The business contributed $909 million to quarterly earnings, compared with $644 million a year earlier. Auto, mineral and chemical shipments have fueled gains in Burlington Northern’s traffic.

Iscar, Marmon

“Our major businesses did well last year,” Buffett said in a letter in Berkshire’s annual report today. “Each of our five largest non-insurance companies -- BNSF, Iscar, Lubrizol, Marmon Group and MidAmerican Energy -- delivered record operating earnings.”

The manufacturing segment that includes toolmaker Iscar and Lubrizol posted pretax profit of $658 million, up from $449 million, on earnings at the engine-additive maker. Pretax earnings at Marmon rose to $240 million from $192 million a year earlier. The business has operations including the manufacture of railroad tank cars and wire and cable products.

Profit at utility unit MidAmerican Energy Holdings Co., fell to $316 million from $344 million a year earlier. The business, which sells electricity to homes in the U.S. and U.K., has been investing in renewable energy projects, including the $2 billion Topaz solar project in California.

Buffett has been boosting capital expenditures as he adds staff to support the expansion of Berkshire’s businesses, largely in the U.S. Operating companies spent a record $8.2 billion for property, plant and equipment in 2011. Berkshire increased its headcount by about 10,000 in the year to more than 270,000 employees as Buffett added Lubrizol.

Capital Commitments

“Expect the overwhelming majority of Berkshire’s future capital commitments to be in America,” Buffett wrote in the letter. “In 2012, these expenditures will again set a record.”

Buffett uses so-called float, or the insurance premiums Berkshire holds before paying claims, as a source of funds for investments. In most years the cost of claims has been lower than premiums collected, delivering an underwriting profit to Berkshire in addition to investment income.

The insurance businesses had a fourth-quarter underwriting loss of $107 million driven by results at Berkshire Hathaway Reinsurance Group. That compares with a profit of $414 million a year earlier. Flooding in Thailand in the period contributed to a record year for catastrophe losses in the insurance industry.

Insurance investment income fell to $825 million from $911 million a year earlier after the redemption of securities Berkshire held in Goldman Sachs Group Inc., General Electric Co. and Swiss Re Ltd. Investment income will be “negatively affected” because new investments have comparatively lower yields, according to the report.

Pretax earnings at McLane, the unit that delivers food and alcoholic beverages by truck to clients including Wal-Mart Stores Inc. (WMT), declined to $59 million from $91 million. Berkshire’s furniture stores, jewelry shops and the candy business posted pretax profit of $131 million, compared with $122 million a year earlier.

To contact the reporter on this story: Andrew Frye in New York at; Noah Buhayar in New York at

To contact the editor responsible for this story: Dan Kraut at


Buffett Is ‘On the Prowl’ for Acquisitions as Cash Hoard Climbs

By Andrew Frye and Noah Buhayar - Feb 26, 2012 12:01 PM GMT+0700

Warren Buffett, chairman and chief executive officer of Berkshire Hathaway Inc. (BRK/A), said he’s “on the prowl” for large acquisitions after record earnings at the company’s railroad and energy units helped build cash holdings.

Berkshire’s cash hoard increased to $37.3 billion on Dec. 31 from $34.8 billion three months earlier, the Omaha, Nebraska- based company said yesterday in it its annual report. Fourth- quarter net income declined 30 percent to $3.05 billion on smaller gains from Buffett’s derivative bets.

Berkshire is seeking “to purchase some large operations that will give us a further boost,” the billionaire said in his annual letter to shareholders included in the report. “We now have eight subsidiaries that would each be included in the Fortune 500 were they stand-alone companies. That leaves only 492 to go. My task is clear, and I’m on the prowl.”

Buffett, 81, has spent more than $35 billion in cash and stock on takeovers since the end of 2009 including the purchases of railroad Burlington Northern Santa Fe and engine-additives maker Lubrizol Corp., both of which had record operating earnings last year. Buffett is focusing on acquisitions and buying publicly traded stocks because current yields on bonds, he said, aren’t enough to compensate for the risk of inflation.

Toolmaker Iscar Metalworking, industrial conglomerate Marmon Group and power producer MidAmerican Energy Holdings (329802Q) combined with Lubrizol and the railroad to produce pretax profit of more than $9 billion last year. All were acquired in the past 12 years as Buffett expanded beyond insurance.

‘Fabulous Five’

“Unless the economy weakens in 2012, each of our fabulous five should again set a record, with aggregate earnings comfortably topping $10 billion,” said Buffett.

The economy is in a “steady and substantial comeback” that has eluded the housing market, he wrote. Buffett said the creation of new households will eventually increase demand for homes, though he was “dead wrong” with his prediction in early 2011 that a recovery would begin within a year or so.

Pretax profit in 2011 at Berkshire’s carpet-maker Shaw, insulation provider Johns Manville, Acme Brick and MiTek, a maker of building products, was $513 million compared with $1.8 billion in 2006 before the housing slump.

Full-year net income slipped to $10.3 billion from $13 billion in 2010 as insurance underwriting profit fell 88 percent to $154 million. Natural disasters including flooding in Thailand and the tsunami in Japan fueled claims costs in 2011.

Buffett has used his annual reports to promote his company as a potential acquirer. Berkshire can act quickly on a deal, provide capital to target firms and allow managers the freedom to supervise the operations they built, he has said.

Wells Fargo

Buffett assembled more than 70 operating businesses selling everything from ice cream to underwear and has said Berkshire needs more takeovers as the firm generates about $1 billion a month in net income. He acquired Lubrizol in 2011 for about $9 billion after saying in last year’s letter that “our elephant gun has been reloaded, and my trigger finger is itchy.”

Buffett also accumulated a stake of more than $10 billion in International Business Machines Corp. (IBM) and invested $5 billion for preferred shares and warrants in Bank of America Corp. (BAC), the lender led by CEO Brian T. Moynihan since early 2010. Berkshire was already the largest stockholder in rival Wells Fargo & Co. (WFC)

“The banking industry is back on its feet, and Wells Fargo is prospering,” Buffett wrote. “At Bank of America, some huge mistakes were made by prior management. Brian Moynihan has made excellent progress in cleaning these up, though the completion of that process will take a number of years.”

Weschler, Combs

Buffett said that Ted Weschler and Todd Combs, former hedge fund managers hired in the past two years to help pick stocks, will both assist the next Berkshire CEO in evaluating potential acquisitions.

“They have excellent business minds that grasp the economic forces likely to determine the future of a wide variety of businesses,” he wrote. “They are aided in their thinking by an understanding of what is predictable and what is unknowable.”

Buffett and Vice Chairman Charles Munger, 88, are preparing Berkshire for its next generation of leaders. Buffett said in the letter that the board is “enthusiastic about my successor as CEO,” without identifying the person.

To contact the reporter on this story: Andrew Frye in New York at

To contact the editor responsible for this story: Dan Kraut at


Berkshire Selects Eventual Buffett Replacement

By Andrew Frye - Feb 26, 2012 12:01 PM GMT+0700

Warren Buffett, the chief executive officer of Berkshire Hathaway Inc. (BRK/A) since 1970, told shareholders that the board has decided on his eventual replacement.

Directors are “enthusiastic about my successor as CEO, an individual to whom they have had a great deal of exposure and whose managerial and human qualities they admire,” Buffett said yesterday in his annual letter, without identifying the person. “When a transfer of responsibility is required, it will be seamless.”

Buffett, 81, is under pressure to demonstrate Berkshire is prepared for a transition. The stock trailed the Standard & Poor’s 500 Index last year as Buffett was pushed to apologize for his oversight of David Sokol, a former manager. Sokol, once considered a possible successor, left the company in April and was accused by Berkshire of violating its insider trading policies.

“After the Sokol disaster, he had to settle that issue,” said Jeff Matthews, a Berkshire shareholder and author of “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett.” It was “painfully obvious they needed to have that locked down.” Berkshire declined 4.7 percent last year, compared with little change in the S&P 500.

Berkshire relies on Buffett, also the chairman and head of investments, to oversee a $77 billion stock portfolio and operating units with more than 270,000 workers. He runs the firm from Omaha, Nebraska, with a staff of 24 people and consults with Vice Chairman Charles Munger, 88, about investments. The quality of Berkshire’s businesses and managers will give the new CEO “a running start,” Buffett said.

‘Excellent Health’

“Do not, however, infer from this discussion that Charlie and I are going anywhere,” Buffett said. “We continue to be in excellent health, and we love what we do.”

Howard Buffett, a Berkshire director, said in October his father wasn’t considering retirement, and plans to lead Berkshire until his death. Warren Buffett, who spent $26.5 billion on a railroad takeover in 2010 and more than $10 billion on stock in International Business Machines Corp. (IBM) last year, has said it is the board’s job to tell him to leave if his mind deteriorates or if he is no longer able to do the job.

Buffett owns more than $40 billion of Berkshire stock and has committed most of his wealth to charity. Berkshire is valued at about $198 billion.

Berkshire hired former hedge fund managers Ted Weschler and Todd Combs since the end of 2009 to help Buffett with investments and said last year that it had identified four company executives capable of being CEO. One had board approval to step in “should a replacement be needed currently,” according to a passage in a 2011 regulatory filing.

‘Superb’ Back-Ups

Yesterday, Buffett said that in addition to the designee, there are “two superb back-up candidates as well.” The comment was on the first page of his letter.

“It’s more of a commitment, clearly,” said Alice Schroeder, author of “The Snowball, Warren Buffett and the Business of Life” and a Bloomberg View columnist. “This is not the if-I-get-hit-by-a-bus plan. This is the succession plan.”

Buffett didn’t immediately return a message left with an assistant seeking comment. Weschler and Combs, who are responsible for portions of the securities portfolio under Buffett, will have a role helping the next CEO evaluate possible acquisitions, the billionaire said.

Sokol, who previously ran energy operations for Berkshire and was seen by Buffett biographer Andrew Kilpatrick as a top candidate for CEO, bought stock in Lubrizol Corp. weeks before suggesting Buffett acquire the company. Buffett told shareholders in April he made “a big mistake” by not pressing Sokol about his trades before making the offer. Sokol has denied any wrongdoing.

Jain, Abel

Howard Buffett said in May that his father’s circle of most trusted managers, like insurance executives Tony Nicely, 68, and Ajit Jain, 60, will expand to include railroad head Matthew Rose. Howard Buffett, a 57-year-old farmer and philanthropist, joined the board in 1993 and would preserve the firm’s culture as non-executive chairman, his father has said.

“It would be wise when I am no longer CEO to have a member of the Buffett family serve as the non-paid, non-executive chairman of the board,” Buffett said in Berkshire’s annual report, which was published with the letter. “At my death, the Buffett family will not be involved in managing the business but, as very substantial shareholders, will help in picking and overseeing the managers who do.”

Rose, 52, joined Berkshire in 2010 after selling Burlington Northern Santa Fe, which he runs as CEO. Buffett has overseen Nicely, CEO of car insurer Geico, since 1996 when Berkshire acquired full control of the unit. Buffett hired Jain more than 20 years ago to run a reinsurance business for Berkshire.

Gregory Abel, 49, who joined Berkshire in 2000, replaced Sokol as chairman of MidAmerican Energy Holdings. Buffett introduced Abel to Berkshire shareholders in the billionaire’s annual letter published in 2003, calling the manager Sokol’s “key associate.”

To contact the reporter on this story: Andrew Frye in New York at

To contact the editor responsible for this story: Dan Kraut at