Keystone Pipeline Controversy: Warren Buffett Profits from Obama’s Policies

From Bloomberg,

Warren Buffett’s Burlington Northern Santa Fe LLC is among U.S. and Canadian railroads that stand to benefit from the Obama administration’s decision to reject TransCanada Corp. (TRP)’s Keystone XL oil pipeline permit.

With modest expansion, railroads can handle all new oil produced in western Canada through 2030, according to an analysis of the Keystone proposal by the U.S. State Department.

“Whatever people bring to us, we’re ready to haul,” Krista York-Wooley, a spokeswoman for Burlington Northern, a unit of Buffett’s Omaha, Nebraska-based Berkshire Hathaway Inc. (BRK/A), said in an interview. If Keystone XL “doesn’t happen, we’re here to haul.”

The State Department denied TransCanada a permit on Jan. 18, saying there was not enough time to study the proposal by Feb. 21, a deadline Congress imposed on President Barack Obama. Calgary-based TransCanada has said it intends to re-apply with a route that avoids an environmentally sensitive region of Nebraska, something the Obama administration encouraged.

The rail option, though costlier, would lessen the environmental impact, such as a loss of wetlands and agricultural productivity, compared to the pipeline, according to the State Department analysis. Greenhouse gas emmissions, however, would be worse.

If completed, Keystone XL would deliver 700,000 barrels a day of crude from Alberta’s oil sands to refineries along the Gulf of Mexico, crossing 1,661 miles (2,673-kilometers) over Montana, South Dakota, Nebraska, Kansas, Oklahoma and Texas.

I am more convinced that Mr. Buffett’s investing strategy has been overhauled, from value to political entrepreneurship (cronyism).

Considering Mr. Buffett’s age, perhaps his desire to get continued accolades from the investing world by generating exemplary returns on investment, has become the highest priority. In short, I think Mr. Buffett’s ego has been prevailing over his former style. And a higher time preference for Mr. Buffett’s translates to a portfolio with greater exposures on short term positions (theoretically extrapolates to higher risks).

And aside from the narrowing windows of patience, Mr. Buffett perhaps recognizes the potential blowback from the economic medicine analogy which he often uses to justify government’s intervention in the economy.

In his flagship company, Berkshire Hathaway’s 2009 shareholder meeting Mr. Buffett said,

Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel. These once unthinkable dosages will almost certainly bring on unwelcome after-effects. Their precise nature is anyone's guess, though one likely consequence is an onslaught of inflation.

Such environment would stymie ROIs.

So given the current circumstances, one major way to preserve his reputation would be to take on the political route to squeeze out ALPHA [return in excess of the compensation for the risk borne-wikipedia.org]: lobby and use the government policies to put a kibosh on prospective competition.

At the same time, political privileges not only reduces the short term risks but also provides profits to his company whom has been positioned to profit from policies of 'economic medicines' running on huge dosages (inflationism).

We have accounted for Mr. Buffett’s embrace of cronyism where has previously profited from bank bailouts.

Obama’s policy of “picking winners” in denying the permit for Keystone pipeline project has favored Mr. Buffett’s interests.

And to reciprocate, it’s no wonder the Sage of Omaha has been fervently campaigning for President Obama’s reelection bid, where Mr. Buffett has been one of Obama's major fundraiser.

Why George Soros Loves Big Government

Because Mr. Soros enormously benefits from them.

From Wynton Hall of Big Government.com (hat tip Bob Wenzel)

Billionaire George Soros gave advice and direction on how President Obama should allocate so-called “stimulus” money in a series of regular private meetings and consultations with White House senior advisers even as Soros was making investments in areas affected by the stimulus program.

It’s just one more revelation featured in the blockbuster new book that continues to rock Washington,Throw Them All Out, authored by Breitbart News editor Peter Schweizer.

Mr. Soros met with Mr. Obama’s top economist on February 25, 2009 and twice more with senior officials in the Old Executive Office Building on March 24^th and 25^th as the stimulus plan was being crafted. Later, Mr. Soros also participated in discussions on financial reform.

Then, in the first quarter of 2009, Mr. Soros went on a stock buying spree in companies that ultimately benefited from the federal stimulus.

• Soros doubled his holdings in medical manufacturer Hologic, a company that benefited from stimulus spending on medical systems
• Soros tripled his holdings in fiber channel and software maker Emulus, a company that wound up scoring a large amount of federal funds going to infrastructure spending
• Soros bought 210,000 shares in Cisco Systems, which came up big in the stimulus lottery
• Soros also bought Extreme Networks, which, months later, said it was expanding broadband to rural America “as part of President Obama’s broadband strategy”
• Soros bought 1.5 million shares in American Electric Power, a company Mr. Obama gave $1 billion to in June 2009
• Soros bought shares in utility company Ameren, which bagged a $540 million Department of Energy loan
• Soros bought 250,000 shares of Public Service Enterprise Group, 500,000 shares of NRG Energy, and almost a million shares of Entergy—all companies that came up winners in the Department of Energy taxpayer giveaway that produced the Solyndra debacle
• Soros bought into BioFuel Energy, a company that benefitted when the EPA announced a regulation on ethanol
• Soros bought Powerspan in April 2009. Just weeks later, the clean-energy company landed $100 million from the Department of Energy
• In the second quarter of 2009, Soros bought education technology giant Blackboard, which became a big recipient of education stimulus money
• Soros also bought Burlington Northern Santa Fe and CSX, both beneficiaries of Mr. Obama’s plans for revitalizing the railroads
• Soros bought Cognizant Technology Solutions, which scored stimulus funds in education and health care technology
• Soros also bought 300,000 shares of Constellation Energy Group and 4.6 million shares of Covanta, both of which landed taxpayers’ money through the stimulus, the former of which bagged $200 million

The short of it is that George Soros, like Warren Buffett, seem to operate as political entrepreneurs in an environment which appears to be evolving towards anti-competition based crony capitalism. For them, political capital and clout today seems a far better investing strategy than the traditional methods.

Why Warren Buffett Loves Taxes?

The sage of Omaha Warren Buffett has called for higher taxes on the “rich”.

As I have been pointing out, Mr. Buffett has morphed from a value investor to a political crony.

Maybe Mr. Buffett has gotten tired of studying markets and sees political entrepreneurship as an easy way out to wring short term profits.

Besides given that he is 80 years of age, his guiding dogma premised on a long term time preference may have just narrowed. And this has been incented to keep his fans in awe (as he lives). In short, like politicos he wants to prop up his image for egotistical concerns. This also means that once he is gone, so will Berkshire Hathaway’s string of record outperformance.

The other point is that maybe there has been decreased investment opportunities available in the US (perhaps due to his company’s heft or perhaps due to greater uncertainties from the predominant bailout climate that has haunted the US economy), which is why he embraces this new ‘short-term oriented’ business model.

Nevertheless, the stirring answer on why Warren Buffett loves more taxes has been best articulated by Washington Examiner’s Timothy Carney (hat tip Bob Wenzel)

Buffett Profits from Taxes He Supports

Buffett regularly lobbies for higher estate taxes. He also has repeatedly bought up family businesses forced to sell because the heirs’ death-tax bill exceeded the business’s liquid assets. He owns life insurance companies that rely on the death tax in order to sell their estate-planning businesses.

Buffett Profits from Government Spending

Buffett made about a billion dollars off of the Wall Street bailout by investing in Goldman Sachs on the assumption Uncle Sam would bail it out. He also is planning investments in ethanol giant ADM and government-contracting leviathan General Dynamics.

If your businesses’ revenue comes from the U.S. Treasury, of course you want more wealth.

To repeat, Mr. Buffets like taxes because he PROFITS from it.

Mr. Buffett could always generously volunteer to offer more of his earnings to the US government, but he doesn't.

Yet ironically, he wants to use institutional violence to forcibly extract taxes from his fellow Americans for his benefit. He wants to profit from the efforts of other Americans.

That’s why outside his former investing prowess of seeking 'value' investments, I have lost my respect for his new political philosophy (based on parasitism) which he applies as his new investing template.

World’s Richest Green Political Entrepreneurs

Kerry Dolan of Forbes magazine lists the world’s richest green billionaires

Ms. Dolan writes,

Being green and making money don’t always go hand in hand, but these 10 billionaires have tapped global demand for solar and wind power and gotten very rich from it. To make this list, billionaires were measured on the size of their “green” net worth – for the most part, the value of a stake in a publicly traded wind or solar company (two of the 10 have private holdings; I consulted others to come up with an estimate of those values). The four Chinese billionaires in the top ten illustrate that China really has become the hot spot for solar and wind manufacturing. The added boost came from a booming IPO market in the country over the past year.

It’s true being green and making money don’t always go hand in hand, that’s because being green is more about financial benefits brought by political privileges more than about satisfying consumers.

For instance this article from Washington Post says (bold highlights mine)

A 2008 Citigroup analysis found that about one-third of China’s wind power assets were not in use. Many turbines are not connected to the transmission grid. Chinese power companies built wind turbines that they didn’t use as the cheapest way of satisfying — on paper — government requirements to boost renewable energy capacity.

and...

China indeed invests more than any other nation in environmentally friendly energy production: $34 billion in 2009, or twice as much as the United States. Almost all of its investment, however, is spent producing green energy for Western nations that pay heavy subsidies for consumers to use solar panels and wind turbines.

Bottom line: green energy mostly represents political entrepreneurship (euphemism for crony capitalism).

Warren Buffett Is Human

What I mean is that investing guru Warren Buffett makes mistakes like anyone else.

Joe Mont writes, (bold emphasis mine)

In a recent annual letter to Berkshire Hathaway (BRK-A) shareholders, an eagerly awaited piece of investing insight, Buffett cops to several mistakes. Among them: authorizing the purchase of a large amount of ConocoPhillips stock when oil and gas prices were near their peak. A dramatic fall in energy prices soon followed.

"The terrible timing of my purchase has cost Berkshire several billion dollars," Buffett wrote, segueing into regret over a $244 million parlay in two Irish banks "that appeared cheap" but soon incurred an 89% loss on the initial investment.

"The tennis crowd would call my mistakes 'unforced errors,'" Buffett said.

When a Buffett, Bill Gross or Larry Fink publicly discusses bad decisions, it makes headlines. But there is hardly an investor, pro or amateur, who doesn't have some woeful tale of a sure thing that wasn't or can't-miss advice that did. The key is learning from mistakes and moving on.

The main difference between the pros and the tyros is the ability to accept the emotional and self-esteem angst of making wrong decisions and consequently adapting remedial measures. Yet for many, investing is like a one way street: cash in on profits (or brag about success) and long the losses (or deny the errors).

Another aspect here, aside from human frailty issue, could be one of “karma”.

I have pointed out that Warren Buffett seems to have been transformed from a value investor to a political entrepreneur or an agent who directly profits from government actions/concessions (such as bailouts). Apparently this time investing on such special political conditions engineered by the government (Irish banks) didn’t work.

Since bailouts signify redistribution of resources to political benefactors at the cost of taxpayers, then Mr. Buffett’s loss could be construed in the light of poetic justice.

Forbes’ Philippines 40 Wealthiest

Here is the updated list of the Philippines’ who’s who or the wealthiest 40 from Forbes.

Click here for a crispier image

While attaining wealth by providing consumers their invaluable goods and services is the most admirable trait of successful entrepreneurs, in the Philippine setting, some may have achieved their lofty status from political entrepreneurship or obtaining economic privileges from political concessions.

They are what author Joe Studwell calls as the Asian Godfathers who are “highly effective traders in rent-offering environment.”