This week we want to look at what Warren Buffett and his Bershire Hataway Inc. holdings are investing in…
These are the latest positions… * American Express Co. (NYSE: AXP) over 151.6 million shares. * Anheuser Busch Cos. Inc. (NYSE: BUD) reduced to 15 million shares * Bank of America Corp. (NYSE: BAC) 9.1 million shares * Burlington Northern Santa Fe (NYSE: BNI) 63,785,418 shares * Carmax Inc. (NYSE: KMX) 21.3 million shares * Coca Cola (NYSE: KO) roughly 200 million shares * Comcast (NASDAQ: CMCSA) 12 million shares * Comdisco Holdings (CDCO) over 1.5 million shares * Costco Wholesale (NASDAQ: COST) 5.254 million shares * Gannett Co. (NYSE: GCI) 3.447 million shares * General Electric Corp. (NYSE: GE) 7.777 million shares * GlaxoSmithkline (NYSE: GSK) 1.51 million shares * Torchmark Corp. (NYSE: TMK) more than 3.51 million shares in multiple lots * US Bancorp (NYSE: USB) more than 68 million shares in multiple lots * USG Corp. (NYSE: USG) 17.07 million shares * Union Pacific Corp. (NYSE: UNP) 8.9 million shares * United Parcel Service (NYSE: UPS) 1.429 million shares * WABCO Holdings (NYSE: WBC) 2.7 million shares * Wal-Mart Stores inc. (NYSE: WMT) over 19.9 million shares in multiple lots * Washington Post (NYSE: WPO) over 1.72 million shares in multiple lots * Wells Fargo (NYSE: WFC) over 290 million shares in multiple lots * Wellpoint Inc. (NYSE: WLP) 4.8 million shares * Wesco Financial Corp. (NYSE: WSC) 5.7 million shares

Notice that there are only 2 banks in the midst. This week banks got caught with their pants down. Dozens of banks / brokerages were involved in the auction rate securities implosion. More banks required to buyback billions of dollars in these securities. There are $330 billion funds tied up and suddenly illiquid.
Bank to bank, clients were told that they were in cash equivalents, or money market accounts, when in fact they were in these complicated, very risky funds. Clients were not shown a prospectus nor told that there was any risk. This has put 145,000 customers in financial hardship and forced municipalities to pay dramatically higher interest payments for their bonds. Many municipalities own funds were placed into these securities. They watched their capital become illiquid, suddenly unable to pay salaries for their police officers and fire men.
Last week, three brokerages, UBS, Merrill Lynch, and Citicorp were required to buy back a collective $60 billion. Citi paid a hefty fine of $100 million for its involvement, while UBS paid $150 million in fines. New York Attorney General Cuomo has not finished with Merill.
This week,Wachovia Securities finalized negotiations with Missouri Secretary of State Robin Carnahan and other state regulators. They are paying $50 million in fines and repurchasing nearly $9 billion in auction rate securities. This will repay 40,000 customers. Commerce Bank is repurchasing $545 million, affecting 140 customers. J.P. Morgan and Morgan Stanley will now buy back a combined $7 billion in securities and pay $60 million in fines.
Cuomo isn’t done yet. He announced this week that there are another two dozen+ banks right now in negotiations. Actions such as these from banks and brokerages have clearly eroded customer / investor confidence. Being told by your banker that you are in insured, risk-free money market accounts when in fact you are in very risking complicated instruments is damaging to the banking industry. Who can now trust anything bankers say?

Here is the completely unethical part of this debacle…In May 2005, PricewaterhouseCoopers issued an opinion concerning auction rate securities, stating that auction rate securities should not be cashlike equivalents. “Due to the absence of an absolute put option granted to investors, the classification of this asset class as cash equivalents per FASB 95 is no longer possible. The maturity of ARS will be determined by the final maturity of the underlying bond. The majority of issues have stated maturities well beyong 10 years.” What this means is that the bank industry knew they could not legally market these securities as money market / cas equivalents, and did it anyway.
What makes this even worse is that on May 31, 2006, the SEC censured 15 brokerages for improper practices in the ARS market, finding that they had improperly disclosed the risks involved. The banks included Bear Stearns, Citicorp, Goldman Sachs, JP Morgan, Lehman Brothers, Merrill Lynch, Morgan Stanley, (each paying $1.5million in fines), Suntrust, A.G. Edwards and its parent, Wachovia (all paying $125,000 in fines), Bank of America (paying $750,000 in fines). Notice that these are the same brokerages that were fined millions in 2008, just 2 years later…they learned nothing. They did not change their operating basis.
For UBS’s customers, the healing process will be very slow. Customer dissatisfaction is great and customers are fleeing. Lots of very wealthy clients were burned. UBS knew the auction rate securities were very risky. Emails collected by the SEC show that UBS began dumping the sucurities on its wealthy clients to reduce their own exposure. “As you can imagine during these stressful times, the pressure is on to move our inventory,” stated David Shulman on August 30, head of UBS’s fixed income distribution “I am aware that JPM and Citi are on all ‘alert’ in the same fashion with their retail groups.”

Greed knows no boundaries. These banks / brokerages placed shareholder value above client value. Now they have neither. They transferred their illiquid or worthless bad investments on their clients, keeping their share prices higher. As they say…”Payback is a bitch”.
Next week we will see more banks “offering to repurchase” their securities from their unsuspecting customers. Watch what happens to Merrill and Goldman this week. What does this means to investors? NEVER TRUST ANYTHING YOUR BANKER SAYS. NEVER DEAL WITH YOUR BANKER VERBALLY. EVERYTHING MUST BE IN WRITING. VERIFY EVERYTHING. DO NOT ALLOW YOUR BANKER / BROKERAGE TO “PUT” YOU IN ANYTHING. TAKE CONTROL OF YOUR OWN PORTFOLIO.

This is your opportunity to discover how Shadowtraders can help you learn to take control of your own finances.  You’ll know more than any brokerage or banker.  Do a Shadowtraders webinar this week and see for yourself.