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Highlights from the May 1st Berkshire Hathaway Annual Meeting in Omaha

- The recovery picked up steam in March and April. What was spotty a couple months ago seems much stronger now. The company's Q1 preliminary operating earnings are up 29% over last year.

- In comments on the Goldman controversy, he used the example of Lehman asking Berkshire to insure some muni bonds. Warren was given a list of bonds but he had no idea and didn't care where the list came from. It was Berkshire's job to evaluate the risk and it shouldn't matter who is on the other side of the trade. If ACA made a bad decision, that's their problem. The big loser in the deal was a European bank who lost money because they guaranteed the credit of ACA. If more allegations come to light, he may reevaluate his position.

- In comments on the effect of financial regulation on his derivative contracts, he said that you can't retroactively make a deal with no collateral into a collateralized deal because they have different prices. It would be like selling a house unfurnished, then having the government pass a law that all houses have to be sold furnished, applying the requirement retroactively, but not allowing the seller to change the sales price.

- In comments on problems in Europe, he said he was not worried about currency too much, just the businesses. The problem for Greece is that they can't get out of the crisis by devaluing a currency. He is bearish on all currencies holding their value over time. But that's not unique to any country. As long as U.S. debt is denominated in dollars, there is zero chance of a default. The issue is when the world no longer accepts dollars.

- In comments on why he bought Harley Davidson debt over its stock, he said there are different risk profiles in investing. He said he didn't know what Harley stock was worth but knew they weren't going out of business and that a 15% fixed income return was very attractive. He knew enough about the business to buy the debt, but didn't know enough about the business to buy the stock.

- On the prospects for significant inflation, he said the risks have increased. Not just in the U.S. but around the world. However, while your money can be inflated away, your talents cannot.

- On what can be done to prevent another financial crisis, he said mayhem will occur from time to time because people do crazy things and it's hard to reform people.

- On his comments that he should pay more taxes, he said a wealth tax would be fair, making giving away money a tax dodge that would do a lot of good. He said it's not sustainable for the government to spend 25% of GDP but only tax 15% so some combination of higher taxes or lower spending is coming.

- On job creation, he said Berkshire will hire people when he has something for them to do. He said the country needs a good social safety net because capitalism leads us to be able to do more with less people. There should be a minimum standard of living for people looking for work, but Berkshire is not a social safety net.

- On the question of converting traditional IRAs to Roth IRAs, vice chairman Charlie Munger said he was converting and told the questioner to take that as his answer.

- On the potential for municipal bond defaults, he said Berkshire isn't insuring many bonds because he doesn't think premiums are sufficient.

- On the question of the direction of the market going forward, he said he has no idea what the market will do the next day, next month, or next year. But he knows he'd rather own equities than bonds or cash. Munger said that people should get used to a period of unexciting returns.

- On the question of how much of our current prosperity comes from cheap oil, he said the discovery of oil changed the world and that was only 150 years ago. But even when oil is gone, humans will find a way to innovate and create solutions. There will be more free lunches in the future.

- On how he would assess last year's buying opportunity versus others in history, he said that 90% of the time we don't know where we are in the market cycle. So if you have a temperament that you are afraid when others are afraid, you won't do well in the securities market.

- On the implications of near-zero percent interest, he said that it makes it difficult to invest short term money. At these rates, those investing when Columbus landed may have doubled their money by now. It won't go on forever, but for those getting 0.1% in a money market, it will feel like forever.

- On the question of how you can get better at valuing companies, he said that you don't need to be an expert at everything, but you need to really know the firms you are putting money into. It does not matter how big your circle of competence is, but it's incredibly important to know where the perimeter is. You don't have to be brilliant, just avoid obvious mistakes.

- On what business in the world has the best return on capital, he said it was those that run on negative capital. For example, in the magazine business, you get subscription money up front and send them out later. A lot of consumer businesses have great returns on capital but lots of people want them so it's hard to get them at a good price.

- On whether he can use all the capital the business generates, he said it might be impossible in 10-15 years. They only get three to four serious opportunities per year to buy a business.

- On whether we need high-speed rail, he said it would be non-economic versus car or air. If it gets done, it won't happen through private enterprise. Not enough population density. Works great in Tokyo. Tough to make math work in the U.S.

- On what the cost would be if an earthquake the size of the one that hit Chile hit San Francisco or Los Angeles, he said it was hard to say but could be $100 billion.

- On what Berkshire's exposure would be to a global financial meltdown, he said it isn't a safe bet to assume the entire world is going to come to an end. But Berkshire can withstand more than any other corporation.

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Hmmmm,

buying debt is more profitable than buying stock, very sad indeed. Why didn't someone ask about the manipulation of the stock market or precious metals that would be a good question?

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