Bernanke Raises the Ante; So Does Buffett

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Despite a flurry of activity from the Federal Reserve, investors were unimpressed as stocks were roughly flat on the day, with the Dow Jones Industrial Average (DJINDICES: ^DJI  ) down 0.02% and the broader S&P 500 (SNPINDEX: ^GSPC  ) up 0.04%. As I warned in this column yesterday, just imagine the carnage had the Fed not come through with a continuation or expansion of its "active" policies:

Fed recap: Apparently, Fed Chairman Ben Bernanke is intent on showing up lawmakers for dragging their feet on fiscal policy. No one will be able to say the Fed sat on its hands (I'm a worrier -- my concern is the risk that we'll look back and say they should have):

  • As expected, the Fed will replace Operation Twist, which is expiring this month, with a Treasury bond-buying program in the amount of $45 billion per month. Unlike Operation Twist, which swapped short-term Treasury securities for longer-term Treasury bonds, the new program will expand the Fed's balance sheet.
  • The Fed offered more precise guidance regarding the conditions under which it would maintain short-term rates at zero, including setting a 6.5% threshold unemployment rate.

The micro view:  In a concise press release published today, Berkshire Hathaway (NYSE: BRK-B  ) announced that it had repurchased 9,200 Class A shares at $131,000 each from the estate of an early shareholder. Concurrently, the board raised the ceiling on the valuation the company is willing to pay to repurchase its shares to 1.2 times book value (from 1.1 times.) Not surprisingly, the shares closed today at ... 1.2 times book value. Perhaps this efficient markets malarkey is right once in a while.

The move indicates that Buffett believes that, even at 1.2 times book value, Berkshire shares remain significantly undervalued. I'm happy to see this development, as I've been regularly banging the drum on Berkshire shares since before the first repurchase announcement in September 2011. Someone else who's been banging that drum is value maven Joe Magyer, who wrote recently that "no investment is a slam dunk, but the range of outcomes with Berkshire's stock today skews deeply in investors' favor." To receive his comprehensive assessment of the upside in Berkshire shares, click here to request his premium report, which includes a full year of ongoing updates.

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10/21/2016 4:02 PM
BRK-B $143.60 Down -0.89 -0.62%
Berkshire Hathaway… CAPS Rating: *****