In June, financial advisor and CNBC contributor Dennis Gartman even called Buffett “an idiot.”

But now that Berkshire has rallied more than 35% from its March lows, the only idiots to be found are those that ever doubted the world’s second-richest man’s business savvy. Indeed, many of the moves Buffett made during last year’s market melee are paying off in a big way.

Take, for instance, his $5 billion investment in Goldman Sachs Group Inc. (NYSE: GS). Berkshire last September agreed to buy $5 billion in perpetual preferred Goldman shares that pay 10% interest.  In addition, Berkshire received warrants giving it the right to buy $5 billion worth of Goldman’s common shares at any time over the next five years at a price of $115 per share.

Critics lampooned that deal when shares of Goldman Sachs fell to a 52-week low of $47.41 in November. Since then, however, Goldman’s stock has rocketed more than 240% to close yesterday (Tuesday) at $160.25.

If Berkshire cashed in it’s warrants today, it would make a 40% profit or about $2 billion. But Warren Buffett has always been a long-term investor, which makes that highly unlikely.

“We will hold the warrants,” Buffett said on Fox Business Network. “Every instinct in my body tells me that we will want to hold those warrants until they’re very close to their expiration date. The preferred pays us the dividend and the warrants are going to make us the money.”

While Berkshire waits, the $5 billion in preferred Goldman shares pay an annual interest of $800 million in dividends.

Berkshire’s total stake in Goldman is now worth more than $9 billion – $4 billion more than the company paid for it – according to University of Louisiana finance professor Linus Wilson.

Berkshire’s investment in BYD Co. Ltd., a Chinese producer of both cars and specialized batteries, has also paid off.  Berkshire’s MidAmerican Energy Holdings Co. agreed last Sept. 26 – just three days after the Goldman deal was announced – pay roughly $230 million for a 9.89% stake in BYD. MidAmerican bought 225 million shares of BYD at a HK$8 a piece. Those shares have since risen 430% to close yesterday at HK$42.40, handing Buffett a paper profit of about $1 billion.

Berkshire reported second-quarter profit of $3.3 billion, up from $2.88 billion a year earlier. The boost was largely attributable to derivative gains, which soared to $2.36 billion from $689 million the year prior.

Berkshire’s book value rose 11.4% in the second quarter, to $73,806 a share, and Barron’s estimates that it already could have increased since to around $79,000 now.

What Buffett’s Buying

So if Buffett’s supposedly cold hand has suddenly turned hot, how can investors benefit? Simple: By following the leader.

A 2007 study by two university professors titled “Imitation is the Sincerest Form of Flattery” showed that buying what Buffett has bought – even a month after his purchases – is a pathway to superior returns.

“The market … appears to under-react to the news of a Berkshire stock investment since a hypothetical portfolio that mimics Berkshire’s investments created the month after they are publicly disclosed earns positive abnormal returns of 14.26% per year,” the study said.

And according to a regulatory filing disclosed Aug. 14, Berkshire is reading the tealeaves on healthcare reform. As of June 30, the company had loaded up 1.2 million shares of Becton Dickinson & Co. (NYSE: BDX), a maker of such medical equipment as scalpels, catheters and syringes, while winding down its positions in healthcare insurers. Berkshire cut its holdings in WellPoint Inc. (NYSE: WLP) by 27% to 3.5 million shares and sold 3.4 million shares, or 24%, of its UnitedHealth Group Inc. (NYSE: UNH) stock.

“If the government is going to open health care to more people, demand for health care supplies would increase,” Gerald Martin, a finance professor at American University’s Kogod School of Business told Bloomberg. “The plan that’s going through Congress could be a real negative to the health insurers, but the people who provide the supplies could really benefit.”

Berkshire also increased its holdings in Johnson & Johnson (NYSE: JNJ), the world’s largest maker of health-care products, by 14% to 36.9 million shares. The purchase of J&J shares marks the second straight increase in the size of Berkshire’s stake, according to Bloomberg.

All of the biggest holdings listed in Berkshire’s filing gained in value in the second quarter. American Express Co. (NYSE: AXP) rose 71% in the period, Wells Fargo & Co. (NYSE: WFC) rose 70%, and Burlington Northern Santa Fe Corp. (NYSE: BNI) jumped 22%. Berkshire’s single largest holding, The Coca-Cola Co. (NYSE: KO), rose 9.2% in the three months ended June 30.

Source: Berkshire’s Back, So What’s Warren Buffett Buying Now?

This from Taipan Daily:

“$700 billion here… $700 billion there… after a while, you are talking about real money!”

Yeah, I filched the line. Supposedly it was originally uttered by famed Illinois Senator Everett Dirksen. Except it was supposed to be about a mere couple billion dollars. And no one’s really sure if he actually said it.

Here’s something I know he said, as I filched it from the Congressional Record of June 16, 1965:

One time in the House of Representatives [a colleague] told me a story about a proposition that a teacher put to a boy. He said, ‘Johnny, a cat fell in a well 100 feet deep. Suppose that cat climbed up 1 foot and then fell back 2 feet. How long would it take the cat to get out of the well?’

Johnny worked assiduously with his slate and slate pencil for quite a while, and then when the teacher came down and said, ‘How are you getting along?’ Johnny said, ‘Teacher, if you give me another slate and a couple of slate pencils, I am pretty sure that in the next 30 minutes I can land that cat in hell.’

Ah, That Ain’t Nuthin’

Way back in the dark ages around the middle of the previous century, Dirksen worried that President Lyndon Baines Johnson’s “Great Society” might bankrupt the country: “If some people get any cheer out of a $328 billion debt ceiling, I do not find much to cheer about concerning it.”

LBJ is infamous in conservative circles as a “BigGovernmentTaxandSpendLiberal,” second only to the big cheese himself, FDR. But he can’t hold a candle to the numbers thrown up by the supposedly fiscally conservative administration that is just now giving up control of the White House.

In 2008, the U.S. budget deficit was $455 billion. In the first three months of the current fiscal year of 2009 (commencing in October ’08), they managed to rack up a $452 billion gap. Looking forward, the folks at the Treasury, the Federal Reserve and the FDIC have committed to spending something along the lines of $7.2 trillion.

Oil’s Big Bounce begins on January 21st

In just days, two key conditions for soaring petroleum prices coincide for the first time in history.

Here’s how you could play it for 190 times your money or more…

Something’s Got to Give

Now, before you get out your fountain pen and stationery: I know Mr. Bush had to deal with a war or two, a massive financial crisis and a democratic majority on the Hill. It’s the raw numbers I want to focus on, and how they are likely to impact a couple of key early decisions on the part of the incoming Obama administration.

In 2007, one particular area that was only tangentially connected to wars or finance sucked up about a quarter – some $700 billion – of that $2.7 trillion Federal budget.

I’m talking about healthcare.

Not only did Washington spend a mint on doctors, hospitals, x-rays, drugs, et al, in 2007, the country as a whole doled out some $2.45 trillion, roughly 18% of our entire $13.81 trillion annual GDP.

Something’s got to give, if Obama is to have any sort of free hand at all, and I suspect I know what couch he will look in for some loose change.

Getting Killed at the Doctors

You won’t find a clue in Washington, that’s for sure. Rather, you have to look to a small (at least in comparison to the huge figures we’ve been bandying about) fraud case being settled as we speak up in New York state.

Seems that one of our larger health insurance companies has been bilking its policyholders for years now. Here’s how the scam allegedly worked: Your insurance company only covers a portion of the fee, no matter how much the doctor charges you for a visit or procedure. They call this fraction “usual and customary.”

UnitedHealth Group (NYSE:UNH) was supposedly determining usual and customary reimbursement through “independent research from across the industry.” That is to say, they weren’t taking anyone any worse than any other insurance company.

The Best Revenge

Turns out that all their “independent research” was coming from a single source, an outfit called Ingenix.

Now on the one hand, lots of other big insurers, like Aetna, Cigna and Blue Cross, also use Ingenix. On the other hand, Ingenix is solely owned and operated by… (wait for it)… UnitedHealth!

Unsurprisingly, management at UnitedHealth “respectfully disagrees” with New York Attorney General Andrew Cuomo’s finding that they cooked the books and overcharged millions of Americans. But they clearly don’t disagree all that much, because they are paying out $50 million to a special fund that will reimburse patients.

So here’s your first takeaway from today’s column: mid-dated, at-the-money puts against UnitedHealth Group (NYSE:UNH) could stand to make between 65% and 146% over the next few weeks as UNH’s recent rally unwinds.

The “Even-Newer Deal’s” Stealth Stimulus Plan

But here’s where it gets truly interesting. As I mentioned earlier, many of the other giants in this industry also use Ingenix to determine how much or how little they reimburse clients.

I believe that Cuomo’s case was just a trial balloon. (Think about how the states went after Big Tobacco last time they needed a little spending money.) This time around, they will basically force the big insurance companies to create a whole second “stimulus package” without writing a single government check.

I will keep you up to date as these cases progress, and offer additional short plays on the victims.

Source: Make 146%, Fix the Economy and Put the Screws to an Insurance Company, All at the Same Time… What’s Not to Like?

• Crude futures closed yesterday (Wednesday) at a record $143.57 a barrel in New York after the U.S. Department of Energy announced a 2 million barrel decline in supply last week. Earlier, crude had traded for as high as $143.91 on Globex, MarketWatch reported.

• Shares of General Motors Corp. (GM) plunged Wednesday to their lowest level in 54 years yesterday (Wednesday), as investors shrugged off better-than-expected June sales and analysts raised concerns about the company’s cash needs, The Associated Press reported. In afternoon trading, GM shares fell as low as $9.98, their lowest level since hitting $10.36 a share on Sept. 21, 1954.

• Starbucks Corp. (SBUX) has announced plans to close 600 underperforming U.S. stores and cut up to 12,000 full- and part-time positions, Reuters reported. The company is bracing for its first full-year profit decline since 2000, as it struggles with a deterioration in consumer spending and increased competition.

• The Nikkei 225 average fell 1.3% yesterday (Wednesday) to hit its longest losing streak in more than 40 years, Reuters reported. The benchmark Nikkei logged its 10th straight negative day, a period in which it has slid about 8%, its longest losing streak since February-March 1965.

• UnitedHealth Group Inc. (UNH) will cut at least 4,000 jobs, or 5% of its workforce, in a restructuring effort and has warned that higher costs will cut into profits this year, The Associated Press reported. Chief Executive Stephen J. Hemsley said the company is shifting management positions to better focus on regional coverage.

• American Airlines Inc., the air carrier subsidiary of AMR Corp. (AMR), yesterday (Wednesday) warned 900 flight attendants with the least seniority that they are subject to furlough Aug. 31. The airline said the notice was not a layoff notice, but that the written warning was a required step in the initial layoff process, DowJones reported.

• Circuit City Stores Inc. (CC) shares plunged 9% yesterday (Wednesday) after Blockbuster Inc. (BBI) announced it would no longer be pursuing its takeover offer after a round of due diligence with Circuit City’s books, MarketWatch reported. Shares closed at $2.32 a share yesterday; well under Blockbuster’s initial $6 – $8 per share bid.

• The Wall Street Journal yesterday (Wednesday) reported that Microsoft Corp. (MSFT) was seeking additional media partners for a bid for Yahoo! Inc.’s (YHOO) search engine business. Citing sources close to the talks, the Journal said discussions with Time Warner Inc. (TWX) and News Corp. (NWS), among others, were in early stages and unlikely to result in a deal with Yahoo, Reuters reported.

Source: Global Investing Roundups Thursday, July 3rd, 2008

At midday in New York, the blue-chip Dow Jones Industrial Average Index was down 76.86 points (-0.60%), to trade at 12,748.16. The tech-laden Nasdaq Composite Index shed 17.41 points (-0.72%), to reach 2,390.63. And the broader Standard & Poor’s 500 Index decreased 8.41 points (-0.61%), to hit 1,379.76.

Most sectors were down, with the energy sector (up 0.43%) and the basic materials sector (up 0.08%) posting the only gains. The consumer cyclical sector (down 1.75%) and the technology sector (down 1.12%) had the largest declines.

“Earnings and earnings estimates are coming down,” Mike Ryan, the New York-based head of wealth management research for the Americas at UBS Financial Services Inc., which oversees about $734 billion, said in an interview on Bloomberg Television. “We’re likely to see stocks continuing to be under pressure” in the first half of 2008.

Despite a 24% increase in profit, McDonald’s Corp. (MCD) slumped after it announced a slight decrease in same-store sales for March.

Shares of UnitedHealth Group Inc. (UNH) and Texas Instruments Inc. (TXN) were also down sharply after announcing first quarter results.

In overseas markets earlier today, Japan’s Nikkei 225 Index lost 1.1% with a decrease of 148.73 points to close at 13,547.82. Hong Kong’s blue-chip Hang Seng Index gained almost 1% with a 217.48-point climb, to 24,939.15.

European bourses were down, with the Paris-based CAC40, London’s FTSE 100, Madrid’s IBEX 35 and the Frankfurt-based DAX all posting losses.

At midday, the dollar had lost ground against the euro (down 0.457%) and the pound sterling (down 0.812%), but gained ground against the yen (up 0.204%).