Water Cooler Finance: Rising Markets And Buffett's Successor

By Michael Deane | November 01, 2010 AAA
Water Cooler Finance: Rising Markets And Buffett's Successor

October was quite a month; it ended with decreasing unemployment, rising stock indexes and some serious Buffett news. Also, the GDP is actually increasing, albeit not at a tremendous rate, but still, can we all agree that this recession is over now? We'll also check out what some of the tech titans are doing and take a look at the housing market. (Catch up on last week's news in Water Cooler Finance: Ghosts Of Economies Past.)

IN PICTURES: Baby Buffett Portfolio: His 6 Best Long-Term Picks

Job Increases and Housing Stalls
In a surprisingly positive move, jobless claims dropped last week, falling 21,000 to 434,000. This is the lowest rate reached since July, and comes in below what economists expected. Although this is some slightly optimistic news in the face of persisting economic problems, it should be noted that the drop was only marginal. However, in more good news on the employment front, continuing claims dropped 122,000 to 4,356,000, which, again, is not a tremendous amount, but we'll take the good news where we can get it.

Though the Case-Shiller index is showing that home prices are weakening, it doesn't seem to be at an overly-material rate. Home prices for August fell just 0.1% overall, though some cities experienced gains. Detroit, the hard-hit underdog, actually gained some ground in August, with prices rising 0.5%.

In unrelated news, the Consumer Confidence index rose in August, although it's still at historic lows. Seems that even with incredibly low interest rates, there's not enough confidence in the markets to take out a loan and buy a house. (This index is a widely-used and respected barometer of the U.S. housing market and the broader economy. Read Understanding The Case-Shiller Housing Index.)

Rising GDP and DJIA
The U.S.'s GDP grew 2% in the third quarter, which is not enough to make up for the shortcomings in employment. This sent stocks slightly down for the last trading day in October, but was not enough to kill a strongly performing DJIA's monthly gains.

Though Friday of last week was the 81st anniversary of Black Tuesday, the DJIA finished very well. After an already strong September, the DJIA quietly kept up its momentum, finishing up 4.54 points. It was the strongest October since 2006, and hopefully that momentum will carry the DJIA into a strong November. Part of the rise stock prices were due to the market's anticipation of still more funding from the Federal Reserve, which is expected to kick in next month. Maybe the stimulus will work this time. (To learn more about GDP, refer to What is GDP and why is it so important?)

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Rising and Feuding Tech
One of the strongest stocks in the DJIA this month was Bill Gates' quaint little start-up, Microsoft - I'm sure you've heard of it. MSFT's profits rose 51% due to the strength of its core products, Office and Windows. This is good news for MSFT, though it remains to be seen how it will attempt to profit from the smartphone and tablet computer markets. Apple, on the other hand, reported a 70% increase in earnings for the quarter due to its strength in these two areas. Also in tech titan news this week, Apple sued Motorola for patent infringement. Motorola, which makes the Google Droid smartphone, is alleged to have infringed upon six of Apple's patents. Apple seems to be firing back after Motorola sued Apple in October, also alleging patent infringement.

The Oracle's Successor
And now for the news you've all been waiting for - drum roll please - Warren Buffett, the Oracle of Omaha, has chosen his successor! Kind of. There has been much speculation over who the Oracle would choose, and it turns out that the front runner is a man who no media outlet seems to be able to get a post-high-school picture of, Todd Combs. Thirty-nine year old Combs is currently the manager of a small hedge fund in Connecticut that has about $400 million in assets. The octogenarian Buffett has stated that he will not be stepping down for the time being. Combs' Castle Point Capital is significantly smaller than Berkshire Hathaway, but who can doubt the Oracle? After all, his decisions so far have made him one of the richest men in the world. (The Oracle of Omaha can move over - there's a new investor in town. See Why Warren Buffett Envies You.)

The Bottom Line
We all know that we're not out of the woods yet; a few positive months for the DJIA doesn't mean that there won't be more ups and downs in the markets. The good news on the employment front, however, points to a more optimistic attitude for consumers and employers, and will be something to pay attention to in the coming months. As for Buffett, let's just hope that if and when Combs succeeds the Oracle, he'll not only be able to make the Berkshire Hathaway shareholders a pile of money, but will also continue with Buffett's incredible philanthropy.

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