My friend the Brooks mentioned that Obama’s economic advisers were renown economists and Warren Buffet supported Obama’s ideas. Now I wonder if this is still the case given what Buffet writes in his letter to shareholders of Berkshire Hathaway:
This debilitating spiral has spurred our government to take massive action. In poker terms, the Treasury and the Fed have gone “all in.” Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel. These once-unthinkable dosages will almost certainly bring on unwelcome aftereffects. Their precise nature is anyone’s guess, though one likely consequence is an onslaught of inflation. Moreover, major industries have become dependent on Federal assistance, and they will be followed by cities and states bearing mind-boggling requests. Weaning these entities from the public teat will be a political challenge. They won’t leave willingly.
“Inflation”, “mind-boggling aftereffects”, “once unthinkable dosages”, major industries dependent on the “public teat” who “won’t leave it willingly”? These are not words of someone who still agrees with Obama. By comparing the Federal budget policy to going “all in” in a poker game, Buffet is saying that Obama and the democrats in Congress are making a terrible gamble, echoing David S. Broder in the Washington Post (hat tip: American Thinker), “When we elected Obama, we didn’t know what a gambler we were getting.”
This reveals the mind of the country’s foremost investor, and is undoubtedly representative of how investors feel and why stock markets continue their downward spiral.
Buffett’s annual report also said this:
“Whatever the downsides may be, strong and immediate action by government was essential last year if the financial system was to avoid a total breakdown.”
Buffett has always spoken favourably of Obama, so he probably wouldn’t echo Broder’s sentiments (unless you can provide a counter example). All Buffett appears to be doing is pointing out the consequences of going all in, but he has always believed it was necessary.
Buffett is no Rush.
Last year was a reference to actions taken during the Bush administration which were by comparison to the stimulus package and to the new budget, very restrained.
His new language seems particularly pointed at the new administration’s excesses. A investor who always keeps copious levels of cash on hand is very critical of going “all in” as this administration wants to do. That he has always spoken favorably in the past about Obama, makes these criticism all the more poignant. If you read the letter further, he is extremely critical of how bailout money has created an unfair business climate for his mortgage business, Clayton. He has claimed like me that the overspending will result in the onslaught of inflation–and he is obviously not giving a vote of confidence in the government policy, because inflation is a very bad thing.
I think that Buffet must be starting to experience buyer’s remorse with Obama; and even if he isn’t, investors have not rewarded Obama’s policies by buying at Wall Street. We’ve been in a bear market since the Obama took over.
Not to quibble but I read over Buffett’s stuff and it seems that he’s saying that while Obama’s policies are lamentable they’re a necessary evil.
Also, the only reason why Buffett keeps cash on hand is for investing opportunities, not to diversify his portfolio. I’d imagine in today’s climate he’ll spend almost all of his cash to pick up undervalued securities. Word has it that’s buying up his own stock because it’s so undervalued (I think Berkshire class A is trading at around 75K from 140K per share).
He should keep at least a part of his cash. We are a long way from the bottom.
You are right about him thinking that the initial bailouts were necessary; and I agree to the extent that bailing out the financial market was necessary to avoid a collapse of the financial system. However, I am critical, and so apparently is Buffet, of the sudden shift to profligate spending and high taxation. In my view, it can only plunge us into a long period of stagflation.