Fin - Breakout - US

Dos Hombres: Buffett Has Bottomed and the Tape Is Leaderless

Jeff Macke
Breakout

Two guys, two opinions, two minutes...go!

I kick us off by taking the other side of the idea that this weekend's Berkshire Hathaway meeting is going to turn into a Buffett-bashing bonanza.

My take: David Sokol obviously, clearly, nakedly did something wrong. If ever a guy deserved to get the ax, it was a man who made himself $3 million front-running a trade he himself pitched to a series of bankers and his own boss. What's more, Buffett was atypically and inexplicably tone-deaf in his initial response to the incident, hiding behind platitudes and attempting to dismiss the issue entirely after "reluctantly" accepting Sokol's resignation.

For these things, Buffett was justly ridiculed, raked over the coals and otherwise abused. But Buffett didn't just luck into his position on the Top 10 Richest Men in the World list. He's smart himself and, most important in this case, surrounded by equally sharp people, particularly at his partner Charlie Munger's law firm, Munger, Tolles and Olson.

Yes, Buffett's initial response to Sokol's "resignation" was amateur hour. But Ron Olson, the "Olson" in Munger, Tolles and Olson, is the new crisis spokesman, and he plays for keeps. The Buffett crew is now on the attack, and Sokol's "I was an unwitting -- albeit successful -- investor" act is about to meet a horrible end. America loves two things: Warren Buffett and an exoneration story. This weekend's Woodstock of capitalism may include some pointed questions but, like it or not, Buffett's going to come out the other end all the more endearing for his faults. He's the Ronald Reagan of capitalism, outrageously lucky and surrounded by too many good people to allow criticism to stick.

Nesto takes the helm and suggests a certain caution regarding the overall stock market here. The astute student of market history notes the suddenly stagnant leadership in the tape, even as the indices make new highs. Former leaders energy and tech hardware, while not collapsing, are stalling out in what looks suspiciously like a top. In the meantime, retail is going nowhere rather quickly, despite slightly better than expected indications of consumer health. "The market reminds me of my 7-year-old's bedroom," offers Nesto. "[Stuff] everywhere."

Just for the sake of satisfying my itch to take the other side of any conceivable argument, I suggest that the market, while sloppy, had a decent technical set-up for the bolder traders. Specifically, as laid out in Thursday's Purple Crayon segment, the S&P 500 has managed to creep its way above recent resistance in the 1,340—1,350 area. However you define that move, it gives traders a nice entry point (now at around 1,360) with a stop-loss if the breakout proves to be a fake-out and the tape creeps back under 1,350.

Play it however best allows you to sleep at night, folks. Ours is not to run your book, ours is simply to report what we see. Let us know what you're watching in the space below or at BreakoutCrew@yahoo.com.

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