Berkshire Hathaway (BRK.A) reported results for the third quarter following the close of trading Friday. Operating earnings per share were nearly flat at $1,325 per A share, down slightly from $1,335 in the third quarter of 2008. Operating earnings per share for the first nine months of 2009 declined 11.8% to $3,572 per A share, down from $4,048 per share for the first nine months of 2008.

Net income per share for the third quarter more was $2,087 per A share, more than triple the net income recorded in the third quarter of 2008. However, because net income includes the effects of investment and derivative gains and losses, it is more meaningful to focus on operating earnings per share rather than net income per share.

There are a lot of doom and gloom headlines around at the moment. Lots of development staff being laid off, games selling far less than expected, major publishers making massive losses and release schedules that look a little thin. What is happening here?:

When I first read the DirecTV (DTV) press release I was worried the stock would trade down. I saw the results as mixed with a few negatives offsetting plenty of positives. I sure was wrong. As the conference call (see transcript here) concluded, the stock was up 6.1%.

I think part of the gains relate to ongoing takeover speculation as DTV approaches the closing of its merger with Liberty Media Entertainment (LMDIA). LMDIA owns 54% of DTV. The deal dramatically reduces LMDIA's John Malone's influence and simplifies the corporate structure. It also sets up a spin-off of the rapidly growing DirecTV Latin America unit. That step is widely expected and makes DTV an easier and more attractive merger candidate for AT&T (T). AT&T exclusively sells DirecTV service in the telco channel and is already accounting for the bulk of DTV's new subscribers. With telco TV subscriber additions slowing but telcos still needing TV as part of the bundle in the battle with cable, DTV looks like a better and better acquisition candidate.

[click to enlarge charts]

US non-farm payrolls fell a seasonally adjusted 190,000 in October whilst prior months had positive revisions. August was revised from -201k to -154k whilst September was revised from -263k to -219k. The 3 month moving average of monthly job losses fell below 200k for the first time since September 2008. Details of the establishment survey were as follows:

One of the givens of Las Vegas is that the odds are always stacked in favor of the house. But to the credit of Nevada’s gaming commission, aggressive measures are taken to ensure that only individuals with squeaky clean records are allowed to operate casinos. Just associating with someone of questionable repute can lead to a revocation of a casino license.

The arrest Thursday morning of 14 more individuals accused of insider trading serves as yet another reminder as to why Wall Street must be regulated with the same aggressiveness and diligence as state-licensed casinos. With more than three decades of experience representing individual investors who were deceived or cheated by Wall Street firms I can say with considerable authority that unmitigated greed and dishonesty is rampant in the securities industry. While Federal prosecutors are to be commended for collaring nearly 24 alleged cheaters connected with Galleon Group for trading on inside information, they simply don’t have the resources to root out the legions of crooks that permeate the stock markets.

“Words from the Wise” this week comes to you in a shortened format as I am about to leave Cape Town for a visit to the colder environs of Switzerland and Slovenia. Although reduced commentary is provided, a full dose of excerpts from interesting news items and quotes from market commentators is included. Blog posting will be slow (and totally absent on some days) while I am on the road. The normal blogging service will be resumed on my return to Cape Town on November 16.

The Federal Open Market Committee (FOMC) maintained its extraordinarily accommodative monetary policy following its meeting on Wednesday. The communiqué had no surprises and said that the committee expected to keep the fed funds rate target in the 0-0.25% range “for an extended period”. As expected, the European Central Bank (ECB) and the Bank of England (BoE) also kept interest rates unchanged at 1% and 0.5% respectively.

While major equity markets gyrate in mixed trading after the payroll report, investors in The Blackstone Group LP (BX) are pushing the stock decidedly higher. Blackstone reported earnings Friday morning and while the official numbers showed a loss for the quarter, it appears that trends are turning higher for the private equity firm. Revenue and earnings figures for this company are particularly difficult to analyze because of the partnership accounting surrounding many of the firm’s managed alternative investments, but the statistics from the earnings release were certainly encouraging.

Many of the firms hedge funds have seen significant increases over the past two quarters as asset prices have become more liquid and risk premiums have increased. Unfortunately, quite a few of these funds have “high water marks” which have yet to be eclipsed. A high water mark simply means that the fund must make up losses for investors before Blackstone as a management company can collect the rich incentive allocations as part of its compensation. As these high water marks are reached, the profitability of Blackstone will likely increase geometrically as the firm is able to participate in the profits funded by its investors.

By Simon Johnson

The G20 Finance Ministers and Central Bank governors are meeting today in St. Andrews, talking about the data they will need to look at in order to monitor each other’s economic performance and sustain growth (seriously).

The number of funds on ETF Deathwatch edged up to 113 this month from 111 in October. The count consists of 78 ETFs and 35 ETNs that failed to generate at least $100,000 in average daily value traded (ADVT) for the past month.

E-TRACS CMCI Short Platinum Excess Return (PTD) heads the list again this month. I haven’t checked, but my guess is that PTD holds the record for number of times at the top of the list. PTD saw action on only three days in September and did the same in October, with the other 19 days being zero volume days. However, it did manage to boost trading by 100 shares over September, making for 600 total shares traded last month. Although PTD hasn’t traded in a few days, there are shares available for purchase at $34.02 this morning. If you want to sell, the bid is only $33.62.

The Federal Reserve, the Bank of England, and the European Central Bank are all keeping interest rates exceedingly low and are continuing to engage in “quantitative easing.” The central banks have claimed that they are caught in a “liquidity trap” and cannot force interest rates to go any lower, especially below zero. Their solution is to continue to force liquidity into the banking system in order to keep the financial system functioning and to encourage commercial banks to start lending again.

I have a problem with this interpretation and have been writing about it since the events of the fall of 2008. The liquidity problem the central banks have focused upon is one connected with the liquidity of bank assets and security holdings that are hard to price. The central banks, as well as the United States Treasury, has seen this problem as a liquidity problem.

The pattern in alpha is as important as its magnitude...

- Daniel Li
- Michael Markov

There is little doubt that wiretapping is a highly effective investigative tool, but we decided to try some less intrusive methods. With $20M in profits allegedly pocketed in the scheme, we thought that there might be a possibility that the effect of these transactions could show up in Galleon’s hedge fund returns.

The Federal Open Market Committee (FOMC) concluded its two day meeting Wednesday with its customary announcement at 2:15 PM. The statement concluded (as everyone expected) that the Fed would leave rates unchanged at a target of 0% to 0.25%. More importantly, the committee said that it plans to keep rates exceptionally low for the foreseeable future – a very popular stance with the masses, but one which could lead to significant trouble down the road.

Essentially, it looks like the committee is trying to have its cake and eat it too. The official posture is that the economy is improving and capital markets are once again functioning. To back up this assumption, the Fed points to improving consumer spending, and home buying activity. Now those two areas have been artificially propped up by two major government programs… The “cash for clunkers” measure, along with the first time homebuyers tax credit.

“And your inheritance is…You get to take over payments on the family homestead when we go!”

For those thinking today of their kids’ inheritance, or indeed of their own future, there is a new dynamic that must be taken into account: so many people bought much more house than they would have or could have or maybe even should have because (a) the financing was cheap, (b) the qualifying was easy to non-existent, and (c) because “real estate always goes up, at least in our (choose one: town, state, city, region, whatever.)”

This is fascinating. Finance Professor and creator of the Efficient Markets Hypothesis Eugene Fama:

Stocks managed to survive October with only moderate declines, but in the past two weeks have experienced the most significant correction since early July. The S&P 500 dropped 6.5% from its recent peak, but other indexes (e.g. small-caps and emerging markets) suffered 10% declines. The stock market was highly extended and ripe for a pullback, so this correction was to be expected, and thus far has not done any serious technical damage to the uptrend that has been in place since March. The weight of the evidence continues to suggest that we are experiencing an overdue correction in the context of an ongoing bull market that will extend into 2010.

The only problem is that the above chart is priced in US Dollars: a currency that has lost 15% of its value this year. Remember, investing is all about relative value: assets do not rise in value in a universal sense. Instead they rise relative to other assets.

But what if we step back from the raging and weeping talking heads on TV and instead of opinions, we just look at the facts?