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The Oracle Rises Again


Warren Buffett claws his way back in a big way.

Wall Street banks like Goldman Sachs (GS) and JP Morgan (JPM) aren't the only ones having a lucrative summer. After making some ill-timed bets and taking painful hits during this financial crisis, Warren Buffett is also back.

Of course, it helps that Buffett's Berkshire Hathaway (BRK-A) invested in many of the financial firms that are swiftly climbing out of the deep abyss they fell into during the past year.

Not everyone thinks that's kosher, though. Reuters' Rolfe Winkler is disappointed that the investor he once saw as his hero has profited so generously from the taxpayer bailouts that Buffett himself lobbied so aggressively for. And in his annual shareholder letter, Buffett complained that Berkshire Hathaway was at a disadvantage because its borrowing costs were so much higher than it was for firms with federal backing. Winkler criticizes Buffett for calling out sketchy lending practices elsewhere in the industry while failing to acknowledge that such practices go on in the companies in his own portfolio.

"What saddens me is that Buffett is uniquely positioned to lobby for better public policy, but he's chosen to spend his considerable political capital protecting his own holdings," Winkler notes.

But Buffett is an investor first, and a do-gooder second. The only reason he is able to hold any clout at all is because his financial savvy brought him to the table. And as an investor who's seen his holdings deteriorate as the financial fabric of the world's economy quickly unraveled during the past two years, he should be using his political capital to protect his holdings. After all, what is the point of acquiring political capital at all if you can't use it to protect yourself?

It may not be comfortable to think of the Oracle of Omaha as just another well-connected billionaire investor with chutzpah, but, let's face it, that's what he is. He may live in a modest home and snack on Cheetos and Cherry Coke just like the rest of us, but Buffett didn't become one of the world's best investors by always doing the right thing morally. He's in it to make money.

And when Berkshire Hathaway reports earnings tomorrow, many analysts are expecting it to make oodles of that money.

"It's going to be a blockbuster," Glenn Tongue, an analyst with T2 Partners, which holds Berkshire shares, told Bloomberg. "It may well be the greatest dollar gain in book value in any quarter in the history of the company. Warren Buffett showed extraordinary discipline in the first quarter when all others were losing their heads."

Even as many of the holding companies in Berkshire's portfolio have suffered during the recession, the gains from trades in derivatives contracts are expected to help compensate for the losses this quarter. A steady stream of high dividends from investments in Goldman Sachs and General Electric (GE) should also help stem losses elsewhere.

Shares of Berkshire Hathaway have gained more than 50 percent since their March lows. That's quite a ride, but they still have another 27 percent to go to get back to their 52-week highs. And that's the goal, at least for now.

Buffett may be the consummate value investor, but nobody ever said it takes morals to become one.
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