Paper Economy - A US Real Estate Bubble Blog: The Almost Daily 2¢

Monday, March 09, 2009

The Almost Daily 2¢ - The Magic 8-Ball of Omaha

We all know Warren Buffet's famous investment advice "to be fearful when others are greedy and greedy only when others are fearful" but given his performance as of late, it appears that you could get better clarity from seeking the guidance of a Magic 8-Ball… “Outlook not so good”, “Ask again later”, “Cannot predict now”.

You see, Buffet has gravitas and LOTS of it… But does he still deserve it?

Last October when, through a New York Times Op-Ed piece titled "Buy American. I Am.", he reaffirmed his confidence in the U.S. economy and appealed to the nation to go long U.S. stocks he was, in my opinion, making, at best, an unconscionable mistake.

If his article appeared in the Financial Times, Barron’s or even the Wall Street Journal, things might have been different but Buffet appealed directly to retail investors (regular folks with retirement accounts, savings etc.) through possibly the most widely read general newspaper.

He was seriously wrong on stocks… stock averages did not only NOT bottom in October they fell sharply again in November, rallied feebly during December and have continued to plunge ever since.

Worse yet, he was seriously out of touch with America’s “late-cycle” culture.

Most American’s are still today (even more so last October) functioning with very poor financial sense and skills acquired during a series of long bull runs (and their resultant prosperity) that appear to have all but erased any real notions of proper and balanced risk taking.

Longstanding “rules of thumb” have all been forgotten, replaced by unusual expectations, caution traded for the need of gambler-like speculative action while "skepticism" remains a pejorative term.

When Buffet made his appeal in October he was, in effect, directing a generation of Americans who sadly still trust his “cult of personality” status over their own personal judgment to either stay put in their stocks or worse yet, to broaden their exposure.

Now though, Buffet reports that the U.S. economy has “fallen off a cliff”…

How many Americans were senselessly led astray by this washed-up “pied-piper” of Wall Street?

It is very clear now that the bull-run in Warren Buffet is over and his gravitas has run its course.

You may viscerally doubt this notion and cling firmly to the idea that Buffet is still truly an oracle but…

“Don’t count on it”

Labels: financial reckoning day, suckers rally, wall street cheerleader, warren buffet

8 Comments:

Instead of being greedy because others are fearful, Buffet has decided to be political. It's a sign he's more pessimistic than ever before. I think he's fearful, and not just because of the economy.

I think he's passed beyond greed to desperation.

By Dagger, at 12:55 PM
Buffett really is a one trick pony, and when that trick isn't working anymore, he's washed up.

By shamrock, at 1:18 PM
Buffett was wrong on his president too. Obama has destroyed more wealth than any other person!

By Anonymous, at 6:56 PM
Dagger,

That is very insightful.. I think you are right.

He definitely took some major gambles here in the USA and in Asia during 2006 and 2007... possibly he is seeing in himself that the magic is gone... how else could he have so underestimated the fallout from housing... doesn't seem very wise to me.

Shamrock,

I agree... I think he is a bit of a one trick pony... he and his stock looked real good during bull runs but he completely missed the severity of the decline... he doesn't look like such an exceptional investor anymore.

Anon,

Well the bush administration was pretty good at screwing things up too but really is there ant "real" differences between the dems and the reps... we live in a "late-cycle" society where everything is backwards, upside-down and inside-out... why spend all that much time differentiating between the so-called left and right... at this point there are now great American leaders with which to side with or against on ideological grounds... no Hamiltons, Jeffersons, Franklins, Lincolns, Websters and the like...

The whole of Washington DC, both dems and reps in the house, senate and white house, are all simply sociopaths.

By SoldAtTheTop, at 7:22 PM
Speaking of one-trick ponies, I think it's time for my one trick.

My one trick is to talk about inflation.

Warren Buffet is talking about it too. He says "We are certainly doing things that could lead to a lot of inflation". He's thinking that after the recovery (when?) we'll see inflation worse than we had in the 70s. Like maybe 20% for a few years, depending on the political cycle? Obama won't throttle back on inflation until after the 2012 election, and then he'll get it down to 12% and proclaim a major victory.

Warren B also thinks there's a Bubble in the US Treasury Bond market. Why? Warren doesn't say this, but it must be because a few years down the road inflation is going to destroy bonds.

Inflation is a problem for long-term investors like Buffet. With inflation, PEs go up to keep pace with bond yields. And bond/stock prices drop.

So the stock market ain't commin' back for a long time. (Although Buffet is still talking bullish. I don't understand this. Is he cheerleading?)

Now 9 months ago Buffet was freaking about inflation, telling Bernanke he'd better rein in the money supply. Buffet was right -- the oil bubble was stoking prices. But lately Buffet seems conflicted. He's no longer hectoring poor Ben.

Why?

Because Buffet's gazed into the abyss, and it browned his pants. He knows there are worse things than inflation.

We're not in Omaha anymore, Dorothy. Berkshire is going bye-bye.

Buffet realizes the stimulus, the bailouts, the reckless spending isn't about jobs or priming the pump. It's a deliberate policy to stoke inflation. Which'll stem foreclosures and save the banks.

And reduce everyone's debt too. And nobody has more debt than Uncle Sam.

So the government is actually going to reduce it's debt by borrowing recklessly. I'm not being sarcastic.

And that's what's buffeting the Oracle. All this cognitive dissonance.

By Dagger, at 12:48 AM
Oops, should proofread. I mean PEs go DOWN (not up) to track bond yields. My bad.

By Dagger, at 12:52 AM
Dagger,

Could it be that buffet has just been pulled in too many directions...

First he gets on the emerging market bandwagon a little late... and seriously spanked both domestically and globally...

Then he gets all embroiled in the current administrations election and initial financial rescue planning... (its interesting to note that he choose NOT to join the administrations initial rescue planning meeting back in Nov-Dec in person but did supposedly conf call in) though since Dec he has been absent from their messages and I don't believe he has attended any summits.

Now he looks all nutty with his October NYT "Buy USA" appeal... Now he is claiming that the US economy could have totally collapsed last Sept and that since then we have "fallen off a cliff"... then he is voicing serious concern over inflation...

I'm having a hard time drawing a bead on him...

Its like he is in the slow process of derailing... just coming untethered.

By SoldAtTheTop, at 2:28 PM
SoldATTheTop,

Take a look at
http://www.ritholtz.com/blog/2009/03/come-on-buffett/

for another critique. I agree, Buffet should not be advising equities - most people do not understand the risks.

The article above is good. We need to purge the US of all these excessive number of financ erelated industries and get back to manufacturing and saving.

By rama, at 9:44 AM