The Stock & Bond Markets -
Warren Buffet works for me. At least he did yesterday when the "Oracle of Omaha" published his anxiously awaited 20-page letter to shareholders. As Picasso said, "good artists borrow, great artists steal." Borrowing from Picasso (and stealing from Warren) I thought I'd include some of his pearls of wisdom rather than my usual (and sometimes insightful) commentary.

As for the problem experienced by many of the largest lenders, Buffet quoted a large bank CEO's musing that the financial "industry has invented new ways to lose money when the old ways seemed to work just fine." Regarding the U.S. dollars decline over the past 5 years, Buffet's profited over $2.3 billion betting against it, most recently with the Brazilian real which has doubled vs. the dollar over the same time. It's worth noting there are no expectations are stated for the trend to reverse any time soon given a trade deficit of about $2 billion per day. As for the stock market, he continues to look for opportunities (great businesses with superior management selling at reasonable prices) but muses that only 2 companies of the S&P 500 have chosen to expense executive options which are a real expense and dilute shareholder value. Moreover, he points out that the 20th century rise in the Dow from 66 to 11,497 only represented a 5.3% annual return. To accomplish the same this century, the Dow would have to rise to 2,000,000 (that's 2 million), or a gain of 1,987,000 which seems unlikely given the market has only increased by 2,000 (that's 2 thousand) points in the first 7 years of the century so far.

My opinion with respect to the bond market hasn't changed all year and so I'll repeat my position that bonds have been and continue to be a mixed bag. Treasuries have been going up in value based on the expectation of lower rates and demand for the kind of quality only treasuries can provide (the government is the only debtor than can print money to cover the debt). Many other types of bonds have been declining in reaction to their quality ratings declining or expected decline. Bond investors should stick with the highest quality bonds only and stay with short-mid term maturities.

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Real Estate -
Vacant new homes on the market are at record levels with 370,000 and another 216,000 are under construction according to the Commerce Department. Large home builders, stuck with inventory, are taking unusual steps to unload properties and generate muc needed cash. D.R. Horton has cut prices up to 50% at 23 developments in Southern California. Pacific West Companies is offering a ``risk free'' price guarantee to inspire buyers in its California communities in which the company will refund the difference between the price the buyer pays now and the price a similar property in the same development sells for if it's less than the homeowner paid. Whether this represents a bottom is anyone's guess but prices are certainly more attractive than they've been in a while. To end where this commentary began, stealing some of Warren Buffets comments, it's worth noting the "country is experiencing widespread pain because of the erroneous belief [housing prices would forever rise]. As house prices fall, a huge amount of financial folly is being exposed. You only learn who has been swimming naked when the tide goes out - and what we are witnessing at some of our largest financial institutions is an ugly site."