Warren Buffett treated like rock star at annual meeting

OMAHA, Nebraska (AP) —Before facing questions from a crowd of more than 30,000, billionaire Warren Buffett started Saturday by being mobbed by fans at Berkshire Hathaway's annual meeting.
Shareholders again treated the 82-year-old investor like a rock star at Saturday's annual meeting.
Admirers held their cell phones and iPads in the air as they surrounded Buffett in the meeting's 200,000-square-foot exhibit hall. A pack of security guards created a buffer around Buffett as he visited displays selling Berkshire's See's Candy, explaining BN SF railroad's virtues and highlighting some of the company's other 80-plus subsidiaries.
Andy Paullin, drove to Omaha from Milwaukee, Wis., on Friday to attend the meeting and learn from Buffett and Berkshire Vice Chairman Charlie Munger, just as he has done nearly every year since 2007.
"It's exciting to be here and listen to these guys," he said. "I can't believe more people aren't interested."
OUTLOOK: Warren Buffett feeling good about economy
At the See's booth, Buffett got a lesson in making hand-dipped bonbons. Then See's manufacturing manager Steve Powell got Buffett to autograph his white uniform coat, demonstrating that employees are nearly as excited about meeting Buffett as shareholders.
"He was right there. Why not? It's Mr. Buffett," said Powell, explaining why he asked for the autograph. "He's wonderful."
Powell said he'll probably frame the coat and display it at work when he returns to California.
The Berkshire Hathaway annual meeting began humbly in 1982 with a crowd of 15 in an insurance company cafeteria. It has been growing steadily just as the company's stock price rose to become the most-expensive in the U.S., reaching $162,904 for a Class A share on Friday.
Buffett will sit on stage with his 89-year-old business partner, Munger, to answer questions from shareholders, journalists and financial analysts for six hours.
Buffett hopes to keep the meeting interesting by adding a critic of his company to the panel asking questions. Buffett said in his annual letter that he was looking for an investor with a negative outlook on his company to ask questions at Saturday's meeting. Hedge fund manager Doug Kass responded to Buffett's letter and quickly got the job.
Kass said on CNBC Friday that he has done extensive research to develop his questions, and he is looking forward to it. Kass is the founder of Seabreeze Partners Management, and he writes a column on investing.
Amaury Fernandez and his best friend Rick Cabrera traveled to the meeting from Miami because Fernandez is interested in investing and admires Buffett and Munger.
"They are two of the most remarkable men I've ever learned about," Fernandez said. "We don't know how much longer these gentlemen are going to be alive."
Jim Weber, CEO of Berkshire's Brooks Running company, said he has been reading Buffett's annual letters to shareholders since the 1980s — long before Brooks became part of Berkshire. Weber had even attended four Berkshire annual meetings before Brooks was acquired in 2006 along with Russell Athletic.
"If you're in the business world, it's a bucket list item. There's no other annual meeting like it," Weber said.
In addition to admirers, there are also some protesters. Dozens of Utah coal miners are picketing outside the doors of Berkshire Hathaway's annual meeting in downtown Omaha.
The protesters are member of United Mine Workers of America who work at Deer Creek mine near Huntington, Utah. The mine is run by Berkshire's MidAmerican Energy.
The union's contract expired in January. The company and union are negotiating, but disagree on health care coverage and safety checks. The protesters hope to influence Buffett.
Bernie Morris of Price, Utah, stood in the rain with others Saturday to hand out flyers. The 67-year-old Morris says he's worked for the coal mine for 28 years, but fears he and his wife won't be able to afford the monthly health insurance premium the company wants to charge miners and retirees.
Berkshire Hathaway reported Friday that its first-quarter profit jumped 51% as its insurance companies performed well and the value of its investments soared
The company said it earned $4.9 billion, or $2,977 per Class A share. That's up from last year's $3.3 billion net income, or $1,966 per Class A share.
The Omaha-based conglomerate says its revenue grew 15% to $43.9 billion from $38.2 billion last year.
5 students win contest to meet Warren Buffett
Five lucky students won the chance to consult Warren Buffett on their ideas for improving the health of their schools.
The students won a national contest and got to meet Buffett Friday on the eve of the annual meeting of his Berkshire Hathaway conglomerate.
The students are all Ambassadors for Fuel Up to Play 60, the wellness program backed by the NFL and the National Dairy Council. As part of winning the contest, the students will each receive $4,000 grants to implement their ideas.
Josh Miller, a fifth-grader from Maple Grove, Minn., says Buffett gave him several ideas about how to make his idea for a weekly half-hour exercise program successful.
Buffett says he was happy to play a part in the program because leaders need to be entrepreneurial.

zzBill Gross: You’re going to lose money investing

Bill Gross, Pimco’s chief investment officer, used his monthly investment outlook to take on the timely topic of haircuts.
For those unfamiliar with the jargon, a haircut is simplistically defined as an imposed trimming of the value of an investor’s holding. As the Total Return Fund /quotes/zigman/185339PTTAX0.00% manager points out, this can come in all shapes and sizes
His conclusion: every investor will take some sort of haircut. And it’s mostly because the central banks say so. Here’s his rundown of where the barbers are lurking:

• Negative real interest rates: The cost of borrowing is so low that investors earn negative money when they subtract the rate of inflation from the interest rates on government bonds. Those rates, Gross says, are being held down through quantitative easing. He adds: “Investors are being haircutted by at least 200 basis points judged by historical standards, which in the past offered no QE and priced Fed Funds close to the level of inflation.”
• Inflation and currency devaluation: Inflation is nothing new, but if it gets out of control, investors take a hit when their holdings lose relative value. Plus, it often goes hand in hand with currency devaluation, which can further impair purchasing power.
• Capital controls: federal policies aimed at controlling the flow of money, which cuts into return on capital. Such examples include currency pegging, and taxes on incoming capital, Gross says.
• Default: The most traditional form of haircut, where the borrower of money fails to repay it when due. But it speaks to the larger point that investments are only repaid when the assets backing them perform. If asset prices don’t go up, bonds may default.

Last month Gross said he wasn’t necessarily a great investor. This month is he saying no one is? Well, not exactly. You may lose money investing, but don’t necessarily invest it under your mattress instead. As he says:

“The easiest answer to the question of what to buy is to simply take your ball and go home. If the rules aren’t fair, don’t play. That endgame however, results in a Treasury bill rate of 10 basis points or a negative yield in Germany, France and Northern EU markets. So a bond and equity investor can choose to play with historically high risk to principal or quit the game and earn nothing. PIMCO’s advice is to continue to participate in an obviously central-bank-generated bubble but to gradually reduce risk positions in 2013 and perhaps beyond.”

Gross continued on that risk-averse theme when he tweeted his latest thoughts on the economy Thursday morning:

zz Fed holds steady in face of weak data

WASHINGTON (MarketWatch) — The Federal Reserve pressed ahead Wednesday with its $85 billion-a-month asset purchase program but made few changes to its economic outlook despite a recent spate of poor economic reports for March.

In its policy statement, the Fed stressed that it was flexible, saying it was prepared to either “increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes.”

Fed Chairman Ben Bernanke had previously said the Fed was flexible, but this is the first time it was included in the statement.

After starting the year brightly, the economy has started to look sluggish in recent weeks. At the same time, inflation has been softening and remains well below the Fed’s 2% target.Read more on recent economic data

Many analysts had thought the Fed would downgrade its view on the economy.

Instead, the Fed repeated that the economy is expanding at a “moderate pace.”Read text of FOMC statement.

Economists tend to blame tighter fiscal policy for the slowdown, and the one change the Fed made to the statement in its description of the economy was to say that fiscal policy is restraining growth.

Most analysts still think the economy will rebound in the second half of the year, allowing the Fed to begin to taper its asset purchases.

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Federal Reserve Board Chairman Ben Bernanke speaks during a news conference at the Federal Reserve headquarters March 20, 2013

But if the slowdown continues, these estimates may have to be pushed back.

The vote at the meeting was 11 to 1. Kansas City Fed President Esther George dissented for the second straight meeting.

The Fed will meet next on June 18-19 and Fed Chairman Ben Bernanke will hold a press conference.

The minutes of this two-day meeting will be released on May 22. Economists expect there to be an active discussion of the factors behind the weaker inflation.

zz QUALCOMM, Inc. (QCOM): Should You Worry?

Mobile chip maker recently took a dip despite reporting solid quarterly earnings and guidance. The San Diego-based company, which temporarily eclipsed Intel Corporation (NASDAQ:INTC) as the world’s most valuable chip manufacturer last November, has been a hot growth stock over the past decade, rising over 300% on robust demand for mobile processors and components.

Can this tech giant continue to rise, despite worries regarding the increasing saturation of the smartphone market?

A steady second quarter

For its second quarter, QUALCOMM, Inc. (NASDAQ:QCOM) earned $1.17 per share. Net income slid 16% to $1.87 billion from the prior year quarter, but was in line with Thomson Reuters estimates. Revenue rose 24% to $6.12 billion, and topped the consensus estimate of $6.08 billion.

Looking forward to the full year, QUALCOMM, Inc. (NASDAQ:QCOM) expects to earn $4.50 to $4.55 per share, in line with the consensus estimate of $4.54. It now expects full-year revenue of $24 billion to $25 billion, up from its prior estimate of $23.4 billion to $24.4 billion. The company expects higher top line growth from rising smartphone sales.

On the surface, QUALCOMM, Inc. (NASDAQ:QCOM)’s earnings report was lackluster but steady. Yet the stock plunged over 5% on April 25 after earnings, due to concerns that it hadn't set the bars high enough for its quarterly and full year earnings per share guidance.

Qualcomm’s main products are processors and radio chips for smartphones and tablets. The company’s most well-known product is its Snapdragon mobile processor, which is used by Samsung, HTC, Sony, Nokia Corporation (ADR) (NYSE:NOK) and Research In Motion Ltd (NASDAQ:BBRY) in their mobile devices. Qualcomm also produces radio chips for Apple Inc. (NASDAQ:AAPL), and there are rumors that Apple may use the Snapdragon processor in a lower-end iPhone.

Smartphone shipments are forecast to rise 20% annually to 1.7 billion by 2017, according to research firm Gartner. However, research firm IDC notes that even if the smartphone market grows 27% this year, it still represents a slowdown from the 46% year-on-year growth it reported in a year ago, which means that the market is becoming increasingly saturated.

To compensate for this imminent saturation of higher-end markets, Qualcomm is looking toward lower-end markets, especially across Asia, to continuing growing its top line. QUALCOMM, Inc. (NASDAQ:QCOM) noted that only a third of mobile handsets in China were capable of 3G speeds, which makes it a fertile market for its radio chips. Qualcomm also noted that sales of 3G devices have risen 34% over the past year to 1.1 billion in emerging markets.

However, there are major challenges in these markets.

Low-cost handset manufacturers currently buy cheaper components from Qualcomm and pay lower royalties for its network technology. QUALCOMM, Inc. (NASDAQ:QCOM) must also face lower cost component makers - such as Taiwan-based Mediatek and China-based Spreadtrum Communications- which are willing to sacrifice their own margins in exchange for market share gains and revenue growth.

This shifting focus to lower-margin emerging markets worries analysts. They are concerned that Qualcomm’s higher-margin business is about to flatten, similar to the fate of smaller industry peers such as Broadcom Corporation (NASDAQ:BRCM).

Investors want to see Qualcomm continue growing its profit at a faster rate than in its revenue, which will be difficult if it focuses on China, India and other emerging markets.

“You're seeing revenue upside but not the earnings upside you'd want to come with it,” stated Bernstein analyst Stacy Rasgon. “Whether it's because of competition or they're investing to stop competition, either way - it can lead to margin decline.”

A major initiative in QUALCOMM, Inc. (NASDAQ:QCOM)'s push into emerging markets is the Qualcomm Reference Design program (QRD). The QRD program, which provides OEMs with Qualcomm hardware templates to base their designs on, allows vendors to create new handsets in as few as 60 days from start to launch. Before QRD, it took manufacturers between a year and a year and a half to launch a new product.

While the QRD program is mainly used by Chinese companies such as Lenovo, Yulong and Tianyu, Qualcomm noted that “Tier 1” device makers -- such as Samsung and HTC -- are currently evaluating the program for use with their lower-end handsets. As of January, Qualcomm reported that 40 manufacturers have commercialized over 170 QRD-based devices. While over 90% of those devices were for the Chinese market, OEMs in Brazil, India, Taiwan and Vietnam have also joined the program.

The rise of QRD means that smaller companies can create cheaper smartphones, fragmenting the market in emerging markets further. This means that if companies such as Apple Inc. (NASDAQ:AAPL), Research In Motion Ltd (NASDAQ:BBRY) or Nokia Corporation (ADR) (NYSE:NOK) want to capitalize on the growth of these markets, they may have to significantly slash their margins to remain competitive.

An uphill battle for the big boys

Although Apple Inc. (NASDAQ:AAPL) has already denied rumors of a $99 iPhone, analysts still believe that the company needs a lower-priced product to remain competitive in emerging markets. Most rumors indicate that Apple could offer a cheaper iPhone in the $300 to $400 range, in comparison to its average unsubsidized price of $613. Yet even at that price range, Apple will struggle to remain competitive, especially when Chinese companies such as Xiaomi are selling Android smartphones comparable to the Samsung Galaxy S4 and iPhone 5 for approximately $250 to $300.

Meanwhile, BlackBerry has had some success in emerging markets with its touch-based Z10, but with an unsubsidized price near $600, it is still considered too expensive to achieve widespread adoption. Therefore, CEO Thorsten Heins noted that the company needs to produce a lower-end device to remain competitive. However, BlackBerry faces the same problem as Apple -- it will have to aim much lower if it is serious about capturing the lower-end market share.

Meanwhile, Nokia is enjoying moderate success in emerging markets with its low-end Asha devices. The new QWERTY keyboard-equipped Nokia Asha 210 sells for an unsubsidized price of $70, and has been touted as an ideal lower-end competitor to Research In Motion Ltd (NASDAQ:BBRY)’s upcoming Q10, which features a traditional QWERTY keyboard. If the Asha 210 sells well, it may be a sobering example of how low Apple and BlackBerry need to set their prices.

Therefore, QRD could change the game substantially for these manufacturers, by leveling the playing field for the lower-end handset industry. Since the same lower-end manufacturers using QRD tend to install Android, it would be a boon for Google Inc (NASDAQ:GOOG) as well.

The Foolish Bottom Line

While QUALCOMM, Inc. (NASDAQ:QCOM)’s top line is growing at a healthy rate, its margins seem destined to decline as it aggressively expands into emerging markets. However, this might be its only viable path for future growth, and its proactive promotion of its QRD program insures that it will remain the backbone of mobile handsets worldwide. For now, demand for its higher-end Snapdragon 600 and 800 processors, which will power devices such as the Samsung Galaxy S4, Sony Xperia and HTC One, will keep its margins intact.

Considering that Qualcomm now trades at an attractive 12.7 times forward earnings after its post-earnings plunge, I think that it can easily bounce back despite slower growth forecasts and lower profits.

U.S. to eye high-speed traders, money funds

Stability council to release third report on risks to the economy

WASHINGTON (MarketWatch) — Federal regulators on Thursday will detail threats to financial stability, with expectations that concerns will focus on high-speed computerized trading, money-market funds and bank vulnerabilities in today’s low-interest rate environment.

The recommendations will be released by the Financial Stability Oversight Council, which is a multi-agency panel charged with identifying risks to the economy to Congress.

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Regulatory observers agree that the report — the third of its kind — will focus some attention on systemic market structure issues, including the impact of computerized high-speed trading and the expansion of dark pools, which are trading systems that are not openly available to the public where buyers and sellers submit orders anonymously.

“It is a cause célèbre for a lot of regulators,” said Larry Tabb, founder of the capital markets research firm Tabb Group. “The biggest issue is not necessarily what happens during 99.9% of time, it is when market data issues arise and firms can’t adequately value risk, so they don’t want to risk their capital.”

More sophisticated rules seeking to prevent another so-called “flash crash” that shook the markets in 2010 took effect earlier this month. Tabb contends that they won’t be enough to convince the council that the risk to the economy from computerized high-speed trading is gone. Read about high-speed trading in the council’s 2012 report.

ECONOMY AND POLITICS | @MKTWEconomics

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• Durable-goods orders sink 5.7% in March
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In addition to market structure issues, risks associated with mortgage REITs, money-market funds and large financial institutions are also all expected to be spotlighted in the report.

Publicly traded mortgage REITs include Annaly Capital Management /quotes/zigman/189739/quotes/nls/nly NLY +0.38%  , American Capital Agency /quotes/zigman/110324/quotes/nls/agnc AGNC +0.21%  and Newcastle Investment Corp. /quotes/zigman/299237/quotes/nls/nct NCT +1.95%  , while top money-market fund providers include Federated Investors /quotes/zigman/217607/quotes/nls/fii FII +0.17%  , Charles Schwab /quotes/zigman/240465/quotes/nls/schw SCHW +0.30%  and Goldman Sachs .

Donald Lamson, a former Office of the Comptroller of the Currency assistant director who now a partner at Shearman & Sterling in Washington, said the council has taken a particular interest in reforms to the $2.7 trillion money-market fund industry and it will continue to do so in the report.

The council is considering a formal recommendation that the Securities and Exchange Commission take action to impose tougher rules on money-funds. The recommendation may be having its intended effect: Under pressure from the council, top SEC officials say reform of the industry -- considered by many to be systemically risky -- is at the top of their agenda.

Marcus Stanley, policy director at the left-leaning advocacy group Americans for Financial Reform, said the report is likely to focus this year on concerns that financial institutions are having a tough time managing risk in today’s low-interest rate environment.

Stanley said the low interest rate environment gives firms an incentive to reach further for yields and get into more exotic products. He expects the report to take a closer look at riskier products such as high-yield bonds, leveraged loans and mortgage REITs.

The report may look at the exit strategy for institutions when interest rates finally do rise.

“How will they sell off bonds in a way that you don’t see bond prices drop across the board, driving a disorderly rush for the exit in the bond market,” he asked.

Report provides guidance on post-Lehman rules

Lamson added that there is a possibility that the council will also designate some firms other than banks that are systemically risky, noting that the members of the group designated eight so-called financial market utilities as systemically risky last year on the same day it released its 2012 annual report to Congress.

Observers have been hotly awaiting the release of the names of these institutions, which will be subject to gradually increasing capital levels, lower leverage limits and more liquidity. Some possible designated firms include GE Financial, a unit of General Electric /quotes/zigman/227468/quotes/nls/ge GE +2.14%  , Prudential /quotes/zigman/294774/quotes/nls/pru PRU +0.69%  , American International Group /quotes/zigman/557836/quotes/nls/aig AIG +2.41%  and MetLife /quotes/zigman/252112/quotes/nls/met MET +1.54%  , as well as BlackRock /quotes/zigman/249424/quotes/nls/blk BLK -0.31%  and Pimco, a unit of Allianz /quotes/zigman/143088 DE:ALV +1.01%  .

He added that the report will also likely review the issue of whether U.S. banks also should hold a form of so-called “contingent capital,” a special kind of capital that would act like a bond in good times but convert automatically into loss-mitigating common equity in a crisis.

The form of capital is also known as “bail-in capital” because it would force the institution to give itself an injection of common equity in a crisis, thereby potentially avoiding the need for a taxpayer funded capital infusion. The council last year recommended that the Fed and other regulators continue to look at the issue and study the “advantages and disadvantages” of the bail-in instruments.

After-Hours Trading:Understanding the Risks

The New York Stock Exchange and the Nasdaq Stock Market—the highest volume market centers in the U.S. today—have traditionally been open for business from 9:30 a.m. to 4:00 p.m. Eastern Time. Although trading outside that window—or "after-hours" trading—has occurred for some time, it used to be limited mostly to high net worth investors and institutional investors.

But that changed by the end of the last century. Some smaller exchanges now offer extended hours. And, with the rise of Electronic Communications Networks, or ECNs, everyday individual investors can gain access to the after-hours markets. Before you decide to trade after-hours, you need to educate yourself about the differences between regular and extended trading hours, especially the risks. You should consult your broker and read any disclosure documents on this option. Check your broker's website for available information on trading after-hours. As with trading during regular hours, the services offered by brokers during extended hours vary. You should therefore shop around to find the firm that best suits your trading needs.

While after-hours trading presents investing opportunities, there are also the following risks for those who want to participate:

• Inability to See or Act Upon Quotes. Some firms only allow investors to view quotes from the one trading system the firm uses for after-hours trading. Check with your broker to see whether your firm's system will permit you to access other quotes on other ECNs. But remember that just because you can get quotes on another ECN does not necessary mean you will be able to trade based on those quotes. You need to ask your firm if it will route your order for execution to the other ECN. If you are limited to the quotes within one system, you may not be able to complete a trade, even with a willing investor, at a different trading system.
  
• Lack of Liquidity. Liquidity refers to your ability to convert stock into cash. That ability depends on the existence of buyers and sellers and how easy it is to complete a trade. During regular trading hours, buyers and sellers of most stocks can trade readily with one another. During after-hours, there may be less trading volume for some stocks, making it more difficult to execute some of your trades. Some stocks may not trade at all during extended hours.
  
• Larger Quote Spreads. Less trading activity could also mean wider spreads between the bid and ask prices. As a result, you may find it more difficult to get your order executed or to get as favorable a price as you could have during regular market hours.
  
• Price Volatility. For stocks with limited trading activity, you may find greater price fluctuations than you would have seen during regular trading hours. News stories announced after-hours may have greater impacts on stock prices.
  
• Uncertain Prices. The prices of some stocks traded during the after-hours session may not reflect the prices of those stocks during regular hours, either at the end of the regular trading session or upon the opening of regular trading the next business day.
  
• Bias Toward Limit Orders. Many electronic trading systems currently accept only limit orders, where you must enter a price at which you would like your order executed. A limit order ensures you will not pay more than the price you entered or sell for less. If the market moves away from your price, your order will not be executed. Check with your broker to see whether orders not executed during the after-hours trading session will be cancelled or whether they will be automatically entered when regular trading hours begin. Similarly, find out if an order you placed during regular hours will carry over to after-hours trading.
  
• Competition with Professional Traders. Many of the after-hours traders are professionals with large institutions, such as mutual funds, who may have access to more information than individual investors.
  
• Computer Delays. As with online trading, you may encounter during after-hours delays or failures in getting your order executed, including orders to cancel or change your trades. For some after-hours trades, your order will be routed from your brokerage firm to an electronic trading system. If a computer problem exists at your firm, this may prevent or delay your order from reaching the system. If you encounter significant delays, you should call your broker to determine the extent of the problem and what you can to get your order executed.

For tips on how to invest wisely, visit the Investor Information section of our website. You can learn more about the impact of ECNs and after-hours trading on the securities markets by reading a special study that the staff of the SEC prepared in June 2000.

zzWhat is after-hours trading? Am I able to trade at this time?

After-hours trading (AHT) refers to the buying and selling of securities on major exchanges outside of specified regular trading hours. Both the New York Stock Exchange and the Nasdaq National Market operate from 9:30 a.m. to 4:00 p.m. EST. At one time limited to institutional investors and individual investors with high net worth, AHT is now an option for the average investor as well.

The emergence of electronic communication networks (ECNs) ushered in a new era in stock trading. An ECN is an interface that not only allows individual investors to interact electronically, but also lets large institutional investors interact anonymously, thereby hiding their actions.

The development of AHT offers investors the possibility of great gains, but you should also be aware of some of its inherent risks and dangers:

• Less liquidity - There are far more buyers and sellers during regular hours. During AHT there may be less trading volume for your stock, and it may be harder to convert shares to cash.
  
  
• Wide spreads – A lower volume in trading may result in a wide spread between bid and ask prices. Therefore, it may be hard for an individual to have his or her order executed at a favorable price.
  
  
• Small fish – While individual investors now have the opportunity to trade in an after-hours market, the reality is that they must compete against large institutional investors that have access to more resources than the average individual investor.
  
  
• Volatility – The AHT market is thinly traded in comparison to regular-hours trading. Therefore, you are more likely to experience severe price fluctuations in AHT than trading during regular hours.

We've covered the risks of AHT, but you should also be aware of the benefits. Having the ability to trade around the clock allows you to react quickly to breaking news stories or fresh information. Furthermore, although volatility is a risk associated with trading after hours, you may find some appealing prices during this time.

AHT has developed to the point where all interested investors, big or small, have an opportunity to do business outside of standard hours. Just remember that while there are benefits to participating in AHT, you should also be mindful of the risks.