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Animal Spirits, Favoring Facebook, Tesla, And More-

With Berkshire Hathaway's acquisition of Heinz, the deal making environment looks like it is starting to do more than bubble up. Over the last month, Liberty Global has purchased Virgin Media, Oracle bought Acme Packet, and Dell is looking to take itself private. The current environment has interest rates at rock bottom so financing is incredibly cheap. Public companies have record levels of cash on their balance sheets, and investors are starting to put pressure on management teams to either return the capital or do something productive with it. From the perspective of a shareholder or investor, if a company is sitting on high cash levels and earning nothing on it, you have an unproductive asset. If the cash is held for long periods of time, investor's also lose because of the missed opportunity of using the cash on other potentially more productive assets. If you combine these factors with the fact that many large companies also have very productive cash generating businesses which can be used to pay off potential loans, if this is not a great situation for deal making, when would it be? Moreover, management groups also have a fiduciary responsibility to shareholders to try to increase shareholder value. One way is by purchasing other enterprises which can help their existing businesses. It could very well be we see a lot more activity in the merger and acquisition front over the next year.

Facebook has built a large business and could see many years of growth in front of it. It currently has about $10 billion dollars of cash on the balance sheet, and no debt. It currently made public it will probably pay zero tax to the federal government in 2012. Our president publicly has stated the government should look at closing loopholes many big businesses use to avoid paying their tax obligations. Not only that, specific industries, especially energy, are chastised because they receive tax breaks when they are clearly large and profitable and don't need that preferred status. I think if you are going to be considered even-handed, the government should refrain from criticizing one industry for using tax laws to their advantage, and then ignore others, like those in high-tech, for doing exactly the same thing.

I don't know how many of you have been paying attention to the Tesla Motor controversy with the NY Times. If you have not, it is pretty straightforward. A reporter from the NY Times who owned a Tesla automobile tried to go on a 200 mile trip on the east coast during cold weather. The vehicle he owns was bought for the bargain price of $100,000. The story documented many problems the reporter had during the trip as the car had to stop numerous times. Tesla now says the story was fake and the two organizations are trading barbs through the media. Many in the press have written about how wonderful these electric cars are from Tesla. I have read some investors opinions on how they believe Tesla is a transformational type company. The practical aspect of the idea of electric cars as a mainstream alternative looks more and more questionable, to say the least. People are not going to pay elevated prices for a car which is not close to being functional at all times and in all-weather types. You could also take this a step further and very much question the idea of alternative energy sources being a practical alternative to traditional carbon based solutions. You better believe you will see more and more questions about this issue in the months ahead.

Here is a nice summary of the merger and acquisition situation

If you want more details about the Facebook tax controversy, maybe take a look

Native applications are all the rage- here is an analysis of the emerging industry-

Gold and silver prices had a very tough week, but I wouldn't count them out- here is one writer's thought-

I hope all of you are having a great weekend and thank you for reading the blog.

Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.

Disclosure: I am long BRK.B, LBTYA, LBTYK.