Berkshire Hathaway 2006 Annual Report

[ItalianFX]

I just wanted to post this incase anyone wanted to read it. I haven't read it yet, except the first page of text. Sounds like it's going to be a good read!

http://www.berkshirehathaway.com/letters/2006ltr.pdf

[DesertCat]

[ QUOTE ]


Our U.S. operation also had a good year in 2006, which led to worldwide pre-tax earnings of $143
million at NetJets last year. We made this profit even though we suffered a loss of $19 million in
the first quarter.



[/ QUOTE ]

Sounds like NetJets is turning the corner.

[DesertCat]

Looks like his bet that the dollar would depreciate turned out very well.

[ QUOTE ]

We’ve come close to eliminating our direct foreign-exchange position, from which we realized
about $186 million in pre-tax profits in 2006 (earnings that were included in the Finance and Financial
Products table shown earlier). That brought our total gain since inception of this position in 2002 to $2.2
billion.
...
We’ve made large indirect currency profits as well, though I’ve never tallied the precise amount.
For example, in 2002-2003 we spent about $82 million buying – of all things – Enron bonds, some of
which were denominated in Euros. Already we’ve received distributions of $179 million from these bonds,
and our remaining stake is worth $173 million. That means our overall gain is $270 million, part of which
came from the appreciation of the Euro that took place after our bond purchase.
...
As our U.S. trade problems worsen, the probability that the dollar will weaken over time continues
to be high. I fervently believe in real trade – the more the better for both us and the world. We had about
$1.44 trillion of this honest-to-God trade in 2006. But the U.S. also had $.76 trillion of pseudo-trade last
year – imports for which we exchanged no goods or services. (Ponder, for a moment, how commentators
would describe the situation if our imports were $.76 trillion – a full 6% of GDP – and we had no exports.)
Making these purchases that weren’t reciprocated by sales, the U.S. necessarily transferred ownership of its
assets or IOUs to the rest of the world. Like a very wealthy but self-indulgent family, we peeled off a bit of
what we owned in order to consume more than we produced.


[/ QUOTE ]

[Groty]

I liked his comments about Blue Chip Stamps. He bought it in 1970 when it had $126MM in sales. Last year, it had sales of $25,920 (no zeros ommitted).

The comment: "Ever hopeful, Charlie and I soldier on." LOL.

I wondered to myself why he just didn't dissolve it years ago.

[BenKT68]

The part about Blue Chip was great, I love the way he writes.

Here's the full version of the part that was plastered all over CNBC right away:


[ QUOTE ]
As our U.S. trade problems worsen, the probability that the dollar will weaken over time continues to be high. I fervently believe in real trade – the more the better for both us and the world. We had about $1.44 trillion of this honest-to-God trade in 2006. But the U.S. also had $.76 trillion of pseudo-trade last year – imports for which we exchanged no goods or services. (Ponder, for a moment, how commentators would describe the situation if our imports were $.76 trillion – a full 6% of GDP – and we had no exports.)
Making these purchases that weren’t reciprocated by sales, the U.S. necessarily transferred ownership of its assets or IOUs to the rest of the world. Like a very wealthy but self-indulgent family, we peeled off a bit of what we owned in order to consume more than we produced. The U.S. can do a lot of this because we are an extraordinarily rich country that has behaved responsibly in the past. The world is therefore willing to accept our bonds, real estate, stocks and businesses. And we have a vast store of these to hand over.
These transfers will have consequences, however. Already the prediction I made last year about one fall-out from our spending binge has come true: The “investment income” account of our country – positive in every previous year since 1915 – turned negative in 2006. Foreigners now earn more on their U.S. investments than we do on our investments abroad. In effect, we’ve used up our bank account and turned to our credit card. And, like everyone who gets in hock, the U.S. will now experience “reverse compounding” as we pay ever-increasing amounts of interest on interest.
I want to emphasize that even though our course is unwise, Americans will live better ten or twenty years from now than they do today. Per-capita wealth will increase. But our citizens will also be forced every year to ship a significant portion of their current production abroad merely to service the cost of our huge debtor position. It won’t be pleasant to work part of each day to pay for the over-consumption of your ancestors. I believe that at some point in the future U.S. workers and voters will find this annual “tribute” so onerous that there will be a severe political backlash. How that will play out in markets is impossible to predict – but to expect a “soft landing” seems like wishful thinking.

[/ QUOTE ]
(emphasis mine)

Will anyone besides the little people like me pay attention to this beyond a knowing nod or shrug?