Yesterday it was announced very loudly that "my pal Warren" was going to acquire the 77.4% of the Burlington Northern Santa Fe (NYSE: BNI) railroad, that Berkshire Hathaway (BRK.A) does not already own, for $100 per share, offering about a $24 premium to Mondays closing price.

Talk about putting your money where your mouth is -- yikes! Buffett has gone all in, betting the economy is healing, and silencing anyone that questioned his integrity or motives for cautious optimism saying it was all talk!

Here's the latest PM dose of happy doom. Tyler over at ZeroHedge points out that CDS (credit default spreads) on Berkshire Hathaway are hitting all time highs, implying that the risks Berkshire's (NYS: BRK.B) robust cash machine could break down (and even default at some point) are rising fast. Piqqem Sentiment on Berkshire B-class shares is negative, natch, after Buffett's recent mea culpa for losing money last year. If Buffett has lost his mojo, then does anyone have any magic left?

Late last year my colleague Joseph Lazzaro posted a story about NYU's 'Dr. Doom' Roubini: Stocks may fall another 20% during recession. That has to make one take pause when considering an investment in the stock market today, even after a major drop retesting November lows this week. On the other hand, Warren Buffett went out of his way to encourage the investing public and money managers alike that it was safe to go back into the market.

However, today it has been widely reported that Buffett sold off half of his holdings in Johnson & Johnson and trimmed his stake in Procter & Gamble.

Berkshire Hathaway (NYSE: BRK.A) CEO Warren Buffett has swooped in to buy $300 million of Harley Davidson (NYSE: HOG) distressed debt. And Harley will pay through the nose for Buffett's generosity. That's because Berkshire will get 15% interest on the senior unsecured notes. I guess Buffett likes wallowing in the mud.

Harley is suffering from the downturn and Buffett sees himself getting a great deal on the debt of a company that will ultimately survive. As I posted, Harley's fourth-quarter profit fell 58% due to weaker demand for its motorcycles. The net income of $77.8 million, or 34 cents a share, was the lowest quarterly profit in nine years. Harley will cut 1,100 jobs and close three plants to save $60 million a year. 70% of the firings will take place in 2009 and the rest in 2010.

But Harley stock is up on the news. Frankly that 15% interest rate tells me just how risky Harley is. And I am sure it needs the cash badly if it's willing to pay such a high interest rate. It must be great to be Buffett.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book is You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He has no financial interest in the securities mentioned.

Never mind the $2.83 billion dollar loss -- investors are pushing Wells Fargo (NYSE: WFC) up $4.00 per share (20%) at 11:30 EST to above $20 for the first time in a couple of weeks. This is particularly amusing to me after 'my pal Warren' took some heat from Barron's (subscription required) only a few days ago for being the largest shareholder on a sinking ship.

AP excerpt: Wells Fargo said today that it swung to a $2.83 billion loss in the fourth quarter as it took significant charges to reduce its exposure to the risky assets of Wachovia and built up its reserves to cover future losses.

"We wanted to make sure that as much of the risk of the balance sheet as we could was reduced when we start on this new, wonderful organization," said Chief Financial Officer Howard Atkins in an interview with The Associated Press. While this hurt the bottom line in the fourth quarter, Atkins said, it will have the effect of strengthening the company going forward.

Since the stock market is down so much I have been buying something in the fourth quarter almost every week. I have been patient and have been expanding my watch list. The difficulty for me is that I feel like almost everything is on sale -- but is everything a bargain?

Maybe not; maybe I'm delusional. Perhaps that is because I am tuned into another time and place when I would have been dancing in the streets if I were able to acquire Anglo American ADR (NASDAQ: AAUK) or General Electric (NYSE: GE) for pennies on the dollar. Maybe that is all these stocks are worth? That is what Wall Street currently thinks. That is what Main Street currently thinks. There is a lot more bad news than good.

Then why is Warren Buffett buying, and Carl Icahn and Ken Heebner? After all, I'm just following in their shadows.

The reason is that most investors are simply focused on all the bad news. That is what has most folks' attention and that is making the market -- bankruptcies, billions of dollars in losses, government out of control, Wall Street out of control and more. There is also serious fear things will get worse. If you lost money in the stock market (all of us), or lost your job or your house or any combination of the above, then things look bleak and for now they are. However, we should not be investing for now; we should be investing for the future.

Consider the following elements that support a recovery in the next year. I do not mean a boom, just a recovery -- just a more positive investing environment.

1) By spring it is estimated the government will have poured $2 trillion dollars into an economy of $13 trillion over a 12-month period. Not only is this a market stimulus, but it may prove to be highly inflationary, and if so equities are a better place to be then cash.

Saudi Prince Alwaleed isn't the only foreign investor giving a vote of confidence to struggling Citigroup (NYSE: C). Mexican-based Inbursa bank, controlled by billionaire Carlos Slim Helu, recently took a significant stake in the company, spending about $150 million to buy 29 million Citigroup shares, according to published reports.

Citigroup's stock price had been under significant pressure in recent weeks, which was later exacerbated when it announced that it would cut 53,000 jobs. Last week, shares dropped below $5 for the first time since 1994. But late Sunday, the government announced that it would give the bank an additional $20 billion and would absorb up to $300 billion in potential losses, a model some experts should be used to deal with other struggling institutions. The move also seems to be sitting well with investors including Slim, marked by a 60% jump earlier this week.

But Citi isn't the only company that Slim, one of the richest men in the world, has had his eyes on. Regulatory filings show that he recently boosted his stake in luxury retailer Saks (NYSE: SKS), buying nearly 7.6 million shares of the company over a four-day period. Saks is one of many luxury retailers suffering during the economic turmoil as even the rich cut down on spending. But with Slim's move, he is now the company's largest shareholder.

Berkshire Hathaway Inc. (NYSE: BRK.A) stock has fallen 26% this year to a low not seen since February 2007. That does not sound great, but compared to the S&P's 42% drop so far in 2008, Buffett looks relatively good.

Buffett has been in the news quite a bit lately. His biography tops the business book best seller list and he's been flogger-in-chief for the administration's $810 billion bailout plan -- since it was signed into law, the NYSE index has lost $3.8 trillion of its market capitalization. He's also been trying the cheer-lead America into buying stocks.

But I am wondering whether all this cheer-leading was part of the deal that allowed him to get 10% interest payments and warrants to buy The Goldman Sachs Group (NYSE: GS) and General Electric Company (NYSE: GE) a few weeks ago -- their stocks are well below the $115 and $22.25 a share exercise prices on those warrants. Along with his painful loss of wealth, Buffett's reputation has taken somewhat of a tumble as a result of his getting out in front of what now looks like a bad bailout approach.

If anyone still hadn't fully digested the severity of the financial crisis, here's additional proof. And, if you thought financial firms just sat back and waited for government aide, you have been wrong. If anyone thought Goldman Sachs (NYSE: GS) was somehow unaffected by Lehman's bankruptcy, or wasn't trying to be proactive once it had happened, then the Financial Times over the weekend revealed just how much Goldman was affected. In fact, there was a lot going on -- and maybe still is -- leading up to the government bailout.

Goldman Sachs CEO Blankfein actually called Citigroup (NYSE: C)'s Pandit last month -- after Goldman changed status to commercial bank -- to discuss a merger. While it is reported that Pandit rejected the idea immediately, this kind of call underscores the severity of the crisis and all the secretive talks that never came to light, with and without the government's blessing, to try and resolve problems.

While Citigroup seemed more interested in Wachovia recently (losing out to Wells Fargo (NYSE: WFC), it may have wanted to consider Goldman's suggestion more seriously as the combined strengths would have been remarkable. With Citi's investment banking operation, it is, however, nearly unthinkable the amount of layoffs this merger would have caused -- much more than the current layoffs each firm is undertaking. And more shocking, it would have caused Goldman to lose its independence.

For now, such a merger is unnecessary given the Treasury's capital injection, not to mention Buffett's investment in Goldman. So far, Citi, though, hasn't seemed to move on any deals, or win the ones it does want.

Billionaire Warren Buffett, the greatest investor of our age, today gave free advice to people worried about the economy: buy stocks. Not only is he adding equities to his personal account but they are -- get this -- American stocks. In this day and age when people are diversifying their holdings between the mattress and a safe buried in their backyard, this is a shocking view.

Writing in today's New York Times, the Oracle of Omaha, pointed out quite accurately that stocks are a good long-term investment and that people who are hording cash have reason to worry since the policies of the next president will probably prove inflationary and accelerate declines in the real value of cash accounts. Equities will outperform cash over the next decade, according to Buffett, the head of Berskhire Hathaway Inc. (NYSE:BRK.A)

"Today people who hold cash equivalents feel comfortable," he said. "They shouldn't. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value."

He pointed out that he was getting greedy in a fearful market. That's sensible, practical advice and investors are listening to it -- at least for now. Buffett is not offering easy answers or quick fixes. He does not try to call a "bottom" in the market. In fact, the investor explains that he has "no idea" what the market will do in the short-term. Neither does any one else, and that's the problem.

The Wall Street Journal's 'Heard on the Street' column reports (subscription required) on the less than impressive results of recent stock buybacks at public companies.

When a company buys back its stock, it pays cash to shareholders for their shares, and the retires them -- in a market where the vast majority of stocks are trading well of the highs the market reached last year, many recent buybacks are looking poorly-timed. The Journal writes that "General Electric (NYSE: GE) bought back $29 billion dollars of stock, paying an average of $36 and change for each share, according to regulatory filings. This week, it sold $12.2 billion worth for $22.25 each (before fees) and put $3 billion worth of warrants, with the same strike price, in Mr. Buffett's pocket."

The column goes on to argue that dividends "make for better financial discipline and more transparency." Of course that's easy to say right after the market has tanked, but it's a pretty illogical conclusion.

The main argument against dividends is that they're incredibly inefficient, adding an extra 15% cost. A company that pays out a large portion of its income as a dividend is effectively lowering its margins by 15% -- a move that seriously hampers long-term value.

Of course it's unfortunate that GE bought back so much stock only to sell it again at a lower price, but it's a mistake to form general theories about corporate governance based on anecdotal evidence culled from a once-in-a-generation credit meltdown. Given that shareholders of publicly companies presumably feel that their stocks represent a good value, it makes much more sense for corporate brass to hand them more stock with buybacks instead of cash to pay an extra tax on.

Another low volume August trading day is behind us. Markets in the US responded rather well to economic data but falling oil prices and gold prices are beginning to take over in importance. Oil was down again and gold followed suit. There was generally still a mixed market most of the day. After what we have been seeing for longer than many care to remember we'd consider a mixed day a partial win. Here are today's unofficial closing bell levels:

• DJIA 11,659.90 +43.97 (0.38%)
  
• S&P500 1,298.19 +5.26 (0.41%)
• NASDAQ 2,452.52 -1.15 (-0.05%)
• 10YR T-Note 3.852% (-0.04%)
• 52-WEEK LOWS
• Top Analyst Upgrades
• Top Analyst Downgrades

Mentor Graphics (NASDAQ: MENT) was down 25% at $10.41 in today's final minutes. Its buyout has fallen through. The cause: financing issues. Go figure.

It seems that not a day goes by without some news regarding one of the largest deals Wall Street is following intently these days, InBev's $46 billion hostile takeover bid for Anheuser-Busch Cos Inc. (NYSE: BUD).

Not long ago, Reuters reported that Anheuser-Busch filed a suit Monday against InBev NV, calling the brewer's takeover attempt an "illegal plan and scheme" to acquire Anheuser "at a bargain price."

It isn't surprising the Budweiser maker has filed a suit. Only last week, when A-B officially rejected InBev's $46 billion offer, the latter filed a suit of its own as well as launched a proxy battle, filing a consent solicitation with regulators seeking to replace Anheuser's board. Anheuser's suit seeks an injunction to stop InBev's attempts to replace its board. Anheuser says it wants first to make sure certain alleged false and misleading statements are fixed.

From the lawsuit (pdf file) it seems that some of the misleading statements Anheuser is complaining about have to do with InBev's financing possibilities and its plans for the company once it is taken over. I don't normally read litigation documents, but the language here seems quite strong with allegations even of rumor mongering. Judge for yourself:

It's no secret that InBev's $46.3 billion bid for Anheuser-Busch (NYSE: BUD) was aimed so that it could get its hands on the Budweiser and Bud Light brands, two of the top four selling beers in the world. Carlos Brito, Chief Executive of Belgium's InBev, said so quite clearly. Not only that, he also promised Bud would go on to be made in the same breweries, and that none in the U.S. would be shut down should the merger occurs. He also promised to keep most of management in place.

Well, for me the big question has always been why? What is this Belgian-Brazilian company fascination with beer brands that are so American -- in recognition and in taste. Well, it turns out that this is only partly true. While it is true that it is mostly Americans who drink light beers, Budweiser has actually captured sizable market share outside the U.S., like 13% in Ireland and 11.5% in Canada in 2006.

These past weeks, the deteriorating stock market that responds to expectations of slower or no economic growth in 2008, continued high oil prices, sagging housing market, high debt consumers and the financial industry quagmire, got me thinking about "my pal Warren" again.

It's times like these, when we are looking for a solid footing in the investment world, the few people with positive track records -- measured in decades, not years -- are worth examining once more.

Last year I started a series of stories on Warren Buffett's very basic investment cornerstones. Buffett's Berkshire Hathaway (NYSE: BRK.A) has such a track record. Today, given how many companies are up to their penthouse executive suites in debt, I thought I would continue.

The subject of debt is a simple one. Companies that carry excessive debt on their books are not as good as companies that have cash sitting around. Debt can be a drag on earnings, reduce the company's flexibility and opportunity in a slowing economy, and has all the negative impacts to a company that it does to an individual household.