Buffett Predicts 2011 “Somewhat Better” Than 2010,Weaker Than 2005

 

Buffett Predicts 2011 “Somewhat Better” Than 2010,Weaker Than 2005-06

Feb. 26 2011 - 11:17 pm |

 

Warren Buffett’s 2011 shareholder letter to Berkshire Hathaway shareholders predicted “a general businbess climate somewhat better than that of 2010, but weaker than that of 2005 or 2006,” according to the letter posted on the internet Saturday morning.

He also indicated that Berkshire’s “normal earning power” has increased to nearly 40% pre-tax and well over 30% after-tax, because the acquisition of Burlington Northern Santa Fe railroad “is working out even better than I expected.” Partly as a result of this improvement, Berkshire’s per share book value increased by 13% in 2010– about two-thirds of the 20.2% compounded rate of return over the past 46 years.

Buffett went so far as to estimate Berkshire’s normal earning power will total about $17 billion pre-tax and $12 billion after-tax this quarter.

More specifically, Buffett suggested that ” a housing recovery will probably begin within a year or so.”

He disclosed that Berkshire has $38 billion in cash equivalents that he’s eager to use for more acquisitions, or to gain a higher yield when interest rates rise. Still, he suggested Berkshire could gain a real return of only $500 million on the $38 billion, which is only 1.25%.

Berkshire’s largest equity positions are now; Wells Fargo,WFC, Coca-Cola,KO and Kraft Foods, KFT.

Recent institutional buyers of Berkshire include Tom Russo, and Whitney Tilson. Ken Fisher was a seller.