So about Charlie: Warren Buffet's long time confidant, major domo and lovable knucklehead side kick, while Charlie is not the Sage, he is perhaps the Oregano of Omaha. And like Warren, the financial markets hang on and parse every grunt, gurgle or yelp that issues from this Spice Boy's mouth, looking for glimpses of the famed BH investing genius. So how 'genius' are the grunts?
I've set up four assessment categories: Cliche of the Ages, Deep Insight, Pander-Buffet, and Senility Watch.
On how serious our economic problems are: "I think it's deadly serious. You can never tell what's going to happen when people get as disappointed as they are now. " I presume he is talking about the 'Tea Party', implying that a movement of people seeking to reduce the scope and scale of government and bring its budgets back in balance. Clearly seeking to score points with our panicked press - Pander Buffet
On when we'll see significant economic improvement: "Japan provides a very interesting and threatening example of this type [of] problem. Japan cut interest rates to zero and pumped in all kinds of stimulus through deficit spending, and the result was stasis for 10 years. If that happened in America, it would be terrible. Whether it will happen or not, I don't know. It would be very awkward to go 10 years with zero economic growth." He recycles the Japanese example, states an obvious truth, doesn't point out the immense differences between Japan's closed society and our open one or the fact that Japan free rides on our economic order while if we crap out all bets are off. Cliche of the Ages.
On what caused the financial crisis: "It's been a lollapalooza effect -- a confluence of causes pushing in the same direction. Three main areas I'd say got us to where we are:
- Abusive practices in consumer credit. Banks did things because their competitors were doing them and wanted to keep up. This is crazy. There are times when you should let your competition do things and not want to follow. A lot of consumer lending was venal. It was bad morality that led to a horrible mess in due cause. Bad Morality, Venal. Now those are technical phrases. Is le Munger suggesting that the quality of morality somehow changed one day? People became more venal, less moral? Or is he simply pointing out the nature of the business cycle? Sounds like CNN boiler plate to me. Insight free zone. Cliche of the Ages.
- Wall Street. Wall Street found every which way to make money short of robbery. A lot of it was a bunch of sleazy crooks, but if it worked, no one cares. And what else is new? Mr. Oregano: you were asked to explain causes of the flood and then immediately begin declaiming on average annual rainfall. Please provide substance, sir. Cliche of the Ages.
- Poor regulatory apparatus. Democrats wanted to give things to poor people, thinking it was pro-social activity. They urged Fannie Mae and Freddie Mac to make really dumb loans. Some of it was just ghastly. And the Republicans overdosed on Ayn Rand. It was like they wanted legalized armed robbery. They wanted to create an ethos simply built on 'buyer beware,' which is all wrong." Fannie and Freddie don't make loans, they buy and bundle them. Congress told them to buy higher risk loans. This is correct. It is perhaps a semi insight. To argue that the Republicans 'overdosed' on Ayn Rand is risible on its face. After all, the most intrusive piece of financial regulation promulgated to date (SARBOX - the regulation to end all fraud) was promulgated on their watch. This is a two fer: Pander Buffet and Senility Watch.
On free market financial systems: "People really thought that giving a predatory class of people the ability to do whatever they wanted was free market enterprise. It wasn't. It was legalized armed robbery. And it was incredibly stupid." To argue that a free market is "giving a class of people the ability to do whatever they want" is perhaps forgivable hyperbole. Arguing that the US financial system was a 'free market' system is Cliche, Pander and Senility all in one. Isn't BH a part of this financial system and didn't the other Spice Boy just defend the Goldies, the Capo di Tutti of the system in public? Get your story straight boys.
On accounting standards: "Anyone with an engineering frame of mind will look at [accounting standards] and want to throw up in the aisle. And go ahead if you want to. It will be a memorable moment for all of us." Yep, FASB is driven by legal rule making driven by what the SEC wants. International standards are far looser and more flexible, focused not on rules but economic substance. We could use the standards they have in London, but our Regulators won't let us. Cliche garnished with insight but given everything he's said above, also a pander.
On bailing out the banks: "We had to save these people whether we wanted to or not. And [the Treasury and Federal Reserve] did a fantastic job." Clear sick making pander. So how many billions of your money did the Feds save Mr. Oregano?
On regulation: "Banks that are 'too big to fail' shouldn't be allowed to be anything but boring. And that's how it used to be. Investment banking used to be a consulting business. It was extremely boring. The partners didn't make nearly the kind of money they do today. They were very conservative businesses.
He's right that I banks used to be something else, primarily services driven. But investment houses used to be something else too: the notion of investors (speculators in left parlance) could end up worth upwards of a 100 billion dollars is rather new too.
There's no reason to have a system where every young man has $8 billion to play with and buy whatever he wants. It's incredibly stupid. It's absolutely crazy. If I were in charge, I'd take away everything from banks that wasn't boring. Completely shut down [credit default swaps] 100%. What's the harm in this? The world worked just fine without them. We don't need an economy that resembles a vast poker tournament."
I think young man for Charlie means 48. The world also worked fine without electric lights and with horses shitting in the streets but I don't want to talk about Charlie's childhood. The guy that used to run McKinsey's (can't remember his name, sorry) banking practice argued for plain vanilla financial transaction houses that provided nothing more than payment services and were not allowed to lever money. This is a wise idea. I will give Charlie an Insight star. However the argument that we should shut down CDS is a charming pander from a guy that owns insurance companies that essentially do the same sorts of things. He's arguing to shut down the competition. Clearly a "Reverse Insight/Reverse Senility" star. BH shareholders should be proud of their Charlie.
On President Obama reining in Wall Street: "I admire Obama for wanting to reduce the power of New York City. It would have a constricting effect on the economy at first, but we need it." Senility, pure and simple because reducing the influence of New York by radically increasing the power of Washington is simply driving deeper into an insane and poisonous swamp.
On Wall Street pay: "A man does not deserve huge amounts of pay for creating tiny spreads on huge amounts of money. Any idiot can do it. And, as a matter of fact, many idiots do do it." A man does not deserve tens of billions of dollars for using other people's money to buy and hold companies for decades. Any idiot can do it. Clearly not true in either case. Cliche.
On Wells Fargo's credit quality: "Warren [Buffett] and I think Wells Fargo (NYSE: WFC) is a better credit than most because of its low cost of capital." Credit quality usually doesn't have anything to do with the originator's cost of capital, but I'll attributethat to the senility of the journalist.
On current stock prices: "Our best years were recession years. If you wait for the recovery, it's too late. Am I willing to invest long-term money at these prices? Sure. I'd invest long-term money in Wells Fargo. I'd invest long-term money in Coca-Cola (NYSE: KO). I don't know if it's right or not [in the short term] but you're all a bunch of cultists and you're entitled to hear my opinion." Home spun insight.
On what to expect from the stock market: "To expect a lot is irrational. You're likely to be happier and gain felicity by aiming low." Home spun insight.
On how to avoid 50% losses in the future: "It's in the nature of stock markets to go way down from time to time. There's no system to avoid bad markets. You can't do it unless you try to time the market, which is a seriously dumb thing to do. Conservative investing with steady savings without expecting miracles is the way to go." Can the late in the Interview Charlie go up and talk some sense into the early in the interview Charlie? HSI.
On Treasury Secretary Tim Geithner: "He's a very able person and will do a good job. The job is terribly constrained by politics. This is why I've never had any interest in government. Considering what he's facing, he's doing a great job." In making sure that BH investments stayed whole. If a bureaucrat made me a kajillion dollars I'd praise him to high heaven too regardless of his competence. To do otherwise would be churlish and the Spice boys aren't churls.
On how inflation will impact investing: "I remember the $0.05 hamburger and a $0.40-per-hour minimum wage, so I've seen a tremendous amount of inflation in my lifetime. Did it ruin the investment climate? I think not." HSI, however he isn't speaking to hyperinflation.
On investing in Goldman Sachs even as he and Buffett scolded Wall Street: "We invested in Goldman Sachs (NYSE: GS) because we felt their merits outweighed their defects. That was it. We don't expect perfection from anyone." What? You mean the venal robbers with a license to steal he denounced to high heaven a few moments ago? Well they're OUR robbers robbing for US so they're ok. Reverse Cliche and Pander. Good for shareholders.
On executive leadership: "Some people are more teachable than others. This is also true of dogs, however, so take it as you wish. [The executive level] should be a tough meritocracy. It shouldn't be easy. I look for people I can trust. Hiring people you can't trust is like starting off by dropping a spider in your bosom." HSI
On AIG: These are sad days at AIG (NYSE: AIG), because they were once regarded as great. The news headlines certainly don't help when you're trying to sell trust. Most of the company has been very unlucky, but this happens when people make dumb decisions." Yes, this is true. HSI
On the trade deficit: "Warren [Buffett] is way more pessimistic on this topic than I am. He often talks about China buying up our little pieces of paper [Treasury notes]. I think China has become enormously prosperous by buying our little pieces of paper. It's a huge benefit to them." HSI
On ethanol: "Ethanol is quite possibly the stupidest thing ever invented by rational people. The ultimate social safety net -- which is a very good idea, by the way -- is cheap food, and ethanol production is destroying this. It was a monstrously stupid idea like I haven't seen before." Mega Dittos HSI
On cap and trade: "It's an absolutely insane idea. I mean a really, really stupid idea. If everything [global pollution] was contained to one country, it might work. But it isn't. Do they think China will stop polluting and go back to student labor? Of course they won't. It's insane. We're being distracted by stupid things that have been popular in the past." Mega Dittos HSI, again can late Charlie go back up and talk to early Charlie. He's hitting his stride.
On General Motors (NYSE: GM) and Ford (NYSE: F) : "If I can cheerfully die, any industry can cheerfully shrink. And they will." HSI
On stockbrokers: "Most stockbrokers are a disaster waiting to happen. If anyone ever promises you miracles, show them the door." Home Spun Insight
On adapting to peak oil: "The world will adapt to higher oil prices, because it has to. It won't be the end of the world. Even at $200 a barrel, we'd be fine. People would adapt [mentions smaller cars, electric cars, solar power]. We have an enormous power to adapt." On adaptation: HSI, On failing to laugh out loud at the concept of peak oil. Cliche.
On Berkshire Hathaway's business model: "No one wants to try to copy us because they don't think it would work, and they're probably right. A lot of people think our model is nuts." No opinion.
Asked whether Berkshire Hathaway will be more valuable in five years: [shrugs ...] "Sure." [crowd erupts with laughter.] Aw shucks.
On corporate lawyers: "Law has become far too prosperous. It's way overrated. The cost is too high and the education [of lawyers] is wildly imperfect." Mega Insight.
On newspapers: "Ordinary newspapers will come to perish. The microeconomics are too tough to overcome. It's not a place to invest your money." HSI
On communism: "China has communist builders and communist engineers. That's my kind of communism." Senility. China's Commie builders and engineers are at the The Gorges fiasco, the capitalist ones are building China. Either that or he is making a play on words then it is a clever insight. Crazy like an Oregano Fox.
On books he'd recommend: "Malcolm Gladwell's Outliers is a terrific book. It guides reason very well. By the way, I tend not to read self-help investment books. They're like soap operas: I know all the plots."
Anything by the great Hairball (have you seen a picture of Gladwell? Yikes!) is a good choice. Home Spun Insight.
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