Some Thoughts from Warren Buffet

Always interesting to hear what Warren has to say; this weekend was Buffet-alooza so let's check in. Here are some key thoughts, with my comments in purple

1. Warren Buffett, chief executive officer of Berkshire Hathaway Inc., said the global credit crunch has eased for bankers, and the Federal Reserve probably averted more failures by helping to rescue Bear Stearns Cos. (I agree, socialization of risk and Federal Reserve backstop means at the cost of runaway inflation and tax payers taking on potential risk, the banks are "saved"... just remember that all you young investment banking types - the next time you create a dysfunctional product, just sell as much as you can and get rich - then when the bleep hits the bleep - our government will be there to save the system - it's a beautiful system; for you.)
2. ``In terms of people with individual mortgages, there's a lot of pain left to come.'' (err... the little people... don't worry about them)
3. ``The worry was that there would be contagion; it was a very real worry,'' Buffett said. ``If Bear Stearns had gone, the next day, somebody else would have gone. It could've been a very, very, very chaotic situation.'' (agree - Lehman looked set to go next, and Merrill not far behind - what does that say about the "most stable, 1st world financial system" on the globe? That much of it is a house of cards - an opaque, lightly regulated system full of dominoes - thankfully we have a Federal Reserve willing to print paper money at all costs to keep the juggling act going - the only cost from that is destroying the lives of middle and lower class people and causing global inflation for the world's poor - not a PROBLEM)
4. Buffett, 77, said he was contacted in March before JPMorgan, the third-biggest U.S. bank by assets, agreed to buy Bear Stearns. The person calling him, whom he wouldn't identify, was ``someone responsible'' and wasn't from the Federal Reserve or the Treasury. The call lasted about half an hour, Buffett said. (meanwhile "they" assured us everything was fine ... so public face says one thing, and private face says another - shocker eh?)
5. ``Over time we'd like to develop more international earnings,'' Buffett said. ``If it's a $2 billion deal, fine; if it's a $20 billion dollar deal, fine.'' (haha, even Buffet sees the light - we don't need no stinkin' Americans - it's a secular shift folks - a huge one) Buffett said during the meeting he'd like to buy businesses in India and China, and that he wanted to acquire one or two non- U.S. companies in the next three years. (East continues to take global share away from West - demographic is destiny yet again?)
6. The U.S. dollar will keep weakening and Buffett feels ``no need to hedge'' against currency risk when buying large companies outside the U.S., he said. (what? the strong dollar era is not here? We can't ignore a US federal budget that is shaming? A national savings rate of... negative? Oh darn) "Overall I think that the U.S. continues to follow policies that will make the dollar weaken against other major currencies.... I feel no need to hedge purchases of companies that earn profits in other currencies."
7. After a lunch break, Buffett finally got in some licks at the regulator of Fannie Mae (FNM) and Freddie Mac (FRE)--Office of Federal Housing Enterprise Oversight--for allowing accounting irregularities to go on for some time. Buffett, who describes himself as "the chief risk officer" of Berkshire, also slammed the large commercial and investment banks as both too big to manage and too big to fail, according to the government. Hardly anyone caught Buffett's words when he muttered that "to some extent it's an evil culture." The evil culture he was talking about was Wall Street, the commercial and investment banks who had no idea that their risk models were utterly useless. "They didn't have the faintest idea what risks were involved," he said. He said the culture of investment banks is in some ways "evil" and counterproductive to the financial health of the U.S. (go Warren, but it will never change since they line the pockets of politicians for campaigns) Traders in such firms are often eager to make overly risky investments, a practice which is difficult for the heads of brokerages to stop, he said. This in turn puts too much risk on the financial system as a whole, he said. "It may not be in the interest of a 62-year-old executive, who will be around for the next three years, to worry about that," he said. (Bingo - become CEO, take outsized risk to goose returns to achieve generational wealth for you, your kids, your grandkids and their grandkids, and leave the potential smoking hulk for the US taxpayer via bailout or inflation to worry about - this is the nexus of our financial system)
   
8. But he scoffed at the way both Clinton and Obama "ask for an excess profits tax on Exxon"--but not on the farmers getting rich off the boom in commodity prices. (agree, as I wrote last week, if you replace "farmers" with "big oil" you'd have outrage in the streets at what is going on)
9. His politically incorrect partner Munger declared that "in the 1930s [when oil was first discovered in the Middle East] we should have taken the oil out of the Middle East and put it in the ground" in the U.S. "Eventually," Munger predicted, "we'll have to use the sun for our power." (go solar?)
10. In the Q&A session Saturday morning at Berkshire Hathaway's annual meeting, CEO Warren Buffett and vice chairman Charlie Munger repeatedly warned investors to lower their expectations. When a shareholder asked whether Buffett's recent purchases of publicly traded stocks were likely to generate returns greater than 7% to 10% over time, Buffett promptly said no.
11. While Buffett and his investors are doing well now, the future is uncertain for everyone. Two years ago the sage compared America with “an incredibly rich family” that was “consuming more than we bring in. So we sell off a piece of the farm, or mortgage it. We can’t see what is being sold. We trade away a bit of the farm every day and the rest of the world is happy to buy it. That can go on for a long time but our children will be paying for it one way or another.” (Excellent way to word it)
12. Munger was more blunt. He said America had reached the apex of western civilisation and that today society reminded him of Sodom and Gomorrah. “The last 60 years have been the best years for western civilisation. My generation has been very favoured. It is unlikely that the next 60 years will be so favour-able,” said Munger. (an even better way to word it)
    

Sources: Bloomberg, Forbes, MoneyCNN, UKTimes,