• American Express Co. (NYSE: AXP) over 151.6 million shares, same as last quarter.
• Bank of America Corp. (NYSE: BAC) 5 million shares; same as last quarter.
• Becton Dickinson & Co. (NYSE: BDX) is a raised position 1.5 million shares, was only 1.2 million in prior quarter.
• Carmax Inc. (NYSE: KMX) is a decreased position of 8 million shares, down from 9 million one quarter ago.
• Coca Cola Co. (NYSE: KO) right at 200 million shares, still same as before.
• Comcast (NASDAQ: CMCSA) 12 million shares, same as before.
• Comdisco Holdings (NASDAQ: CDCO) roughly 1.5 million shares, same as before.
• ConocoPhillips (NYSE: COP) is a decreased position of 37.7 million, was 57.43 million shares before and down from 62.485 million at the end of June.
• Costco Wholesale (NASDAQ: COST) 5.254 million shares, same as before.
• Exxon Mobil Corp. (NYSE: XOM) is a decreased holding of only 421,800 shares, this was a new holding last quarter and was 1.276 million shares.

Burlington Northern Santa Fe (NYSE: BNI) was of course still a holding, but this no longer matters as it has been acquired in a deal which was completed Friday.

BUFFETT HOLDINGS G to P

BUFFETT HOLDINGS R to Z

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JON C. OGG

On the options front, Joe Kunkle of OptionsHawk.com told us,  “Berkshire options are active into it’s S&P inclusion, 34,800 calls and 25,700 puts, around 6X average volume.  The largest trades on the day include a buyer of 2,500 February 80/75 strangles, and another buyer of 2,500 February $80 calls.  Caution breeds longer term with opening positions in March 75 puts attracting multiple block buyers.”

Berkshire Hathaway may continue to move on other news, but the big event has been telegraphed for over two weeks now and a 13% run-up just for an index addition is considerable.  That is during a bad stock market to boot.  Profit taking may be seen today or it may come early next week.  Either way, chance are that it will come.

Traders are likely to start selling the news either as soon as this afternoon or early next week.  This event has been known for over two weeks and many of the S&P tracking funds and those funds which trade around big index trades have had ample time to get into the stock.  In short, you have seen a 13% move and there have been new fundamental events that were effectively not known.

Traders definitely trade ahead of and into huge index events.  Some were saying that $14 billion of Berkshire Hathaway needed to be bought.  It just needs to be remembered that an S&P analyst told me that he now sees more than one-third of the required buying happens ahead of the index change event, then there is buying the day of the event, and then a long tail of gradual buying by the funds for a week or two after the event.  It is no longer that funds just wait and buy all at the close or the day of the index change.

Berkshire Hathaway may continue to move on other news, but the big event has been telegraphed for over two weeks now and a 13% run-up just for an index addition is considerable.  That is during a bad stock market to boot.  Profit taking may be seen today or it may come early next week.  Either way, chance are that it will come.

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JON C. OGG

This is the end of the Fitch cycle as the ratings have now been removed from a downgrade watch after being placed there in November.  The rating outlook is now listed as ‘stable.’

Today’s move was no surprise.  After all, there are probably no Triple-A ratings for ANY entity any longer if all of the recent worries are brought back to light…

JON C. OGG
FEBRUARY 10, 2010

This is the standout quote from S&P: “We believe that the railroad acquisition will reduce what historically has been extremely strong capital adequacy and liquidity, and that investment risk with sizable concentrations remains very high.  Also noted is, “The group’s risk tolerances are… not clearly defined at the enterprise level and are a concern as the group’s profile becomes more complex.”

One issue is that S&P expects a significant portion of internal cash used in the deal will come from core insurance operations.  S&P says that has been the case in deals past…. Noted was “…no longer consistent with a ‘AAA’ rating and is not expected to return to extremely strong levels in the near term.”

As a final slap in the face against Warren Buffett, S&P noted that ‘uncertainty remains regarding management succession.’  Again, this has been telegraphed.  It was last April when Moody’s gave Berkshire and Buffett a downgrade.

JON C. OGG

There are multiple maturities here in the prospectus, which is not unusual.  There is a 1-year floating rate note and a fixed and/or floating rate notes for maturity in 2-years and 3-years.  There is also a 5-Year fixed rate note due in 2015 that will be coming.  All of the proceeds are earmarked for paying the BNSF holders in this mega-merger, although there is an out that if the acquisition conditions are not met then the cash raised will be “for general corporate purposes.”

It is hard to imagine that Berkshire will have any shortage of demand for the offering.  If it is signed and stamped by Warren Buffett it is going to have ample client demand from corporate bond buyers.  Investors will get a higher yield than Treasuries or against other sovereign debt, and some might even argue that they’d rather loan money To Uncle Warren over Uncle Sam.

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JON C. OGG

The change is still on a date to be determined.

The total float will have to be calculated out, but this will not likely be the full float nor the full market capitalization of Berkshire Hathaway that will be included in the S&P 500 Index because of the Warren Buffett and Buffett Trust stakes.

Berkshire Hathaway will also join the S&P 100 on a date to be determined.  The merger is expected to be completed in February.  That is what the recent stock split did for investors.  We still think Buffett should consider adopting a similar stock split for the A shares, although at a smaller ratio.   The B-shares closed at $68.00 today and shares rose by over 7% to $73.05 on 777,347 after-hours shares as of 5:49 PM EST.

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JON C. OGG

This is a subject that will be an unpleasant one for Warren Buffett going forward, but we’d like to discuss the possibilities of a much more universal stock split compared to what we are seeing here today.

The B-shares reflect the stock split and were up almost 3% at the open and had traded more than 300,000 shares at the bell.  At 9:50 AM EST we now have shares up 3.8% at $72.17.  The previous close was put at an adjusted price of $69.52, but that was listed as $3,476.00 on an unadjusted basis.

Buffett said the decision was an easy one to make to split the B-shares to accommodate the BNSF holders so that they would not be put at a disadvantage.  That ‘easy decision’ stance is a change from the past.   The merger was already a game-changer and Buffett called it an all-in bet on the future of America.  The problem is that the A-shares are actually put at a disadvantage on the liquidity now.

At the same time the B-Shares are up, the A-shares are up over 4% at $109,050.00 on about 900 shares.  Second guessing Buffett is not always a fun angle to take, but if this was truly such a game-changing merger, the time has come for Buffett to split the A-shares as well.  Having this much inequity in the shares now makes little or no real sense.  Does that split need to be 50 or 100 for 1? No it does not.  But would a $10,900.00 be far less prestigious than a $109,000.00 stock?  Maybe a bit, but the new normal is not supposed to be about flashing wealth and status symbols if you have read the news over the last year.

The A-shares at this point may represent nothing more than a vanity position.  If Buffett were to split his entire share base to the newer level, the company would be a shoe-in for inclusion as one of the 30 Dow Jones Industrial Average stocks.  It may make the S&P 500 Index based upon today’s split, but the liquidity issues and high insider ownership by Buffett (his trust now) would give it a far lower weighting than its market cap would  otherwise indicate.

This new move today should make it far easier for the public to hold Berkshire Hathaway stock, and even long after Buffett exits the company the company will still be able to tout the same plan and strategy.  Buffett has been against stock splits in the past.  The notion that it makes brokerage commissions come up for debate is an argument of yesteryear.  Almost anyone can now buy shares for close $10.00 all in on commission whether they buy 100 shares or 2,000 shares.  Back in the 1960′s and 1970′s, brokers could charge commissions of 2% or 3% going in.  That day is long gone.  Even in the 1980′s Buffett minded that stock splits draw in short-term traders, yet the $100,000+ mark has reached a point that it is unattainable for most of the public.  The notion that it was once $150,000.00 does not change that argument.

There was once a nation that Berkshire Hathaway should be treated as a mutual  fund rather than an operating company.  This BNSF deal changes that notion entirely, and this move may tend to lead Berkshire Hathaway to owning more operations outright at the expense of just buying and holding common stocks of large US companies.

A split is technically a non-event on true fundamentals.  But at this point it has finally become a stock that the public can own.  The stock has underperformed against the market during the entire recovery.  Buffett still needs to remind these people that he is not going to beef up an investor relations effort nor will he change his accounting and reporting stances.  The public investing in Buffett and Berkshire Hathaway has to know that the transparency is often going to be less here than at other financial and/or conglomerate operations.

It might be easier to ask Buffett to go ahead and split the A-shares than it would be to divide the A-shares out to receive dividends.

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JON C. OGG

The number of biotech stocks on the list this weekend is one more of coincidence than one of design.  We have compiled detailed explanations on each stock story below with an outlook of what to watch for in the coming trading days.

Alcoa, Inc. (NYSE: AA) is on deck for earnings on Monday afternoon as the official unofficial start of earnings season, and it is the first of all the DJIA components this earnings season.  Alcoa is expected to return to profitability with earnings of $0.06 EPS and on revenues of $4.82 billion per Thomson Reuters consensus data (whisper numbers are now much higher on earnings).  Friday saw highly unusual options trading as it is one of the few reporting earnings before next Friday’s options expiration date.  JAN10 $17.50 CALLS traded 34,998 contracts versus a prior open interest of 45,721 contracts and saw 7,969 contracts of the FEB10 $17 CALLS change hands versus an open interest of 15,986 contracts.  This closed at $17.02 on Friday versus a 52-week trading range of $4.97 to $17.06.

After Alcoa this week, the other DJIA components reporting earnings are Intel Corporation (NASDAQ: INTC) and J.P. Morgan Chase & Co. (NYSE: JPM) and you can expect earnings previews for both as these get closer.  Intel reports this coming Thursday after the closing bell.  Jim Cramer has been touting that for a blowout quarter and strong guidance this week in his ‘tech tsunami’ stocks for 2010 to play the growth of the mobile internet.  Jamie Dimon and friends over at JPMorgan Chase will report earnings on Friday morning and they have the giant healthcare conference this coming week.

Berkshire Hathaway Inc. (NYSE: BRK-A) (NYSE: BRK-B) may be cheap on a myriad of fronts, according to a Barron’s article called “The Buffett Paradox” from this weekend, despite it questioning Buffett’s criticism of Kraft Foods, Inc.’s (NYSE: KFT) pursuit of Cadbury plc (NYSE:CBY) versus his own expensive acquisition of Burlington Northern Santa Fe (NYSE: BNI).  The new stock issuance and the closure of the Burlington Northern Santa Fe deal discount the stock to an implied forward book value, as well as pressure from arbitrage spread bets keeping pressure on the stock.  Intrinsic value post-BNSF may be $125,000.00 and the publication noted the ‘only’ 3% gain in 2009.  Even more importantly, Barron’s noted a potential addition into the S&P 500 Index and that would give added index buying.

• Buffett’s stock holdings
• Buffett’s stocks with the most analyst upside

Cyclacel Pharmaceuticals, Inc. (NASDAQ: CYCC) is the next biotech speculation stock where trophy hunters keep looking for what may be the next 1,000% return.  This closed up big at $2.67 on Thursday on huge volume, then gapped up even more pre-market on Friday to $3.23 for a 20% gain.  Then it went as high as being up over 35% on Friday, but the problem is that shares closed close to the lows of the trading day at $2.96 on far more shares than it has in its entire float.

Genzyme Corp. (NASDAQ: GENZ) has had issues of its own over manufacturing and other woes for what is becoming too long for most shareholders.  But the company had 3 bits of news which are potential game-changers for it.  If you are a whale-hunter, Carl Icahn is considering making a proxy fight at the company to nominate his own panel of directors and that will come to a head over the next week or two weeks.  The company reached an agreement with an activist investor group called Relational Investors as well this last week over the potential board changes down the road.  Furthermore, the other run came from Genzyme hiring a quality control executive named Ron Branning.  Branning has major experience as prior companies he has worked for are Gilead Sciences, Genentech, Aventis Behring, Somatogen (Baxter), Genetics Institute (Wyeth), Boehringer Ingelheim, GD Searle (Pfizer), and Johnson & Johnson.  Friday was the third consecutive gain and the stock closed up 9.7% this last week.

Immunomedics Inc. (NASDAQ: IMMU) was proof of more ten-bagger hunting for 1,000% hopeful returns as it closed up almost 24% at $4.05.  This run-up was also apparently an insatiable appetite for speculators and traders as this news was on a patent allowance, and was one of more than 300 patents it has globally.  This might not have even mattered except for the notion that it was over a lupus patent, which had traders thinking about the next Human Genome Sciences, Inc. (NASDAQ: HGSI).

MannKind Corp. (NASDAQ: MNKD) had a mystery drop before the close on Friday and closed down 3.35% at $8.04.  Then about an hour after the close on Friday it disclosed what many had expected or feared was coming: the FDA won’t meet the deadline of January 16 of the company’s new drug application review for its Afresa inhalable insulin treatment for diabetes.  The good news shares were only down around $7.80 when we last looked at them on Friday evening.  You want to watch this one Monday because of huge options activity and a monster short interest.

QUALCOMM Inc. (NASDAQ: QCOM) may have been the unofficial winner of this last week’s Consumer Electronics Show in Las Vegas after shares gained almost 7% this last week.  CEO Paul Jacobs touted the Mirasol display technology for eReaders, but the real boost is from the SnapDragon microprocessor that is going into all these new smartphones and now into netbooks and tablets.  Shares closed at $49.47 on Friday and hit a new intra-day 52-week high of $49.80.  Goldman Sachs was positive on the stock this week.

Stillwater Mining Co. (NYSE: SWC) keeps running up higher and higher as this is a platinum and palladium company.  The boom here has been because of the anticipated launch of the new platinum and palladium ETFs yesterday.  The thought is that platinum could get a run-up just from the introduction of the platinum ETF as it is a buyer of physical delivery.  This closed at $12.80 on Friday, just under its intra-day and new 52-week high of $12.90.  This rose from $9.48 the Friday before for a gain of 35%; and the stock is up almost 44% from the Friday just two-weeks ago.  We don’t want to call Stillwater by the name holy water nor bong water just yet.  But trading volume has been the most active in months and months.  This last six session period is the most active in trading that the stock has been since last year when it ran about 40% from mid-May to early June when it had 15 consecutive 1 million-plus shares per day in trading volume.

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JON C. OGG
JANUARY 9, 2010

Bloomberg called this “a slump at its manufacturing and retail units.”  The new tally of about 225,000 workers according to documents pertaining to the planned acquisition of Burlington Northern Santa Fe (NYSE: NBI).

This also followed a Barron’s feature article calling Burlington Northern’s tepid outlook a warning.  In fact, Barron’s leaves the base case scenario as one with no real recovery in 2010 not just at Burlington Northern but in general.  At the same time it poses an inexpensive Berkshire Hathaway stock.

When you consider how many units are at Berkshire Hathaway, more than 70 in all, there are many obvious spots where employees may have been trimmed.  Some of Berkshire’s retail and construction-related units are Acme Brick, Ben Bridge Jeweler, Benjamin Moore, Borsheims Fine Jewelry, Clayton Homes, Helzberg Diamonds, John’s Manville, Jordan’s Furniture, Nebraska Furniture Mart, RC Willey Home Furnishings, See’s Candies, and Star Furniture.  There is also the Buffalo News.

Berkshire Hathaway’s stock has not exactly been a huge harbinger that Buffett and friends will turn the hiring machine back on.  At $98,895.00,  it is down one-third from all-time highs.  The stock is barely up 2% from the $96,600.00 price at the end of 2008.  Shares are up 35% from the March 9 closing that investors use as the official end of the bear market, but this compares to a gain in the S&P 500 Index of roughly 27% in 2009 and  69% since the March 9 closing bell.

It is probably not fair to only look at Berkshire Hathaway’s share price when considering jobs.  Mr. Buffett tends to look at his whole operations rather than his share price, but that won’t necessarily be the same for the Berkshire Hathaway shareholders.  It also took Buffett far longer to turn optimistic than the overall markets indicated throughout the entire 2009 stock market recovery.

Buffett might be more optimistic now, but it doesn’t seem likely the HR departments are yelling “All Aboard!” throughout the subsidiaries.

JON C. OGG

Reuters:   US holiday retailers were up 3.6% according to one report.

Reuters:   A bankruptcy filing by JAL is possible to handle its financial crisis.

Reuters:   Burlington Northern (NYSE:BNI) forecasts point to a weak 2010.

WSJ:   Adjusted for inflation, gains in the DJIA since 1999 are small.

WSJ:   The improved market is allowing new hedge fund start-ups.

WSJ:   The premier of China said inflation is becoming a concern.

WSJ:   Treasury auctions are raising concern about rising rates.

WSJ:   Memory chip makers expect improve sales.

WSJ:   IPOs should increase and be from more diverse industries in 2010.

WSJ:   Movie studios are making a big push for digital sales.

WSJ:   Box office sales hit a record during the Christmas weekend.

NYT:   The holiday season was better for retailers because of controls on inventories and expenses.

NYT:   Several content sites will begin charging subscriptions fees because ad revenue has not been high enough.

NYT:   Ad revenue fell at TMZ in 2009 but Time Warner will still invest in a TMZ Sports spin-off.

NYT:   South Korean companies got a $20 billion project to build nuclear power reactors in the UAE.

FT:   Concerns are rising over sovereign debt risk.

FT:   Black economies are seen as helping the financial status of many nations.

FT:   Corporate optimism is improving markedly.

FT:   Tea, cocoa, and sugar prices are at all-time highs.

Bloomberg:   Morgan Stanley (NYSE:MS) says the yield on ten-year Treasury notes will rise to 5.5% next year.

Douglas A. McIntyre