Posted by Larry Doyle on May 3rd, 2010 8:54 AM |
The Oracle of Omaha Warren Buffett is widely regarded as a true financial statesman. From his understated lifestyle to his self-deprecating manner to his simple wisdom in his books, Buffett has always appeared to be a world apart from most, if not all, other financial titans. While Buffett deserves plenty of the respect accorded him, let’s not totally sanctify him just yet. Why?
Buffett’s widely publicized opinions on the regulations of financial derivatives and the treatment of Goldman Sachs also show him to be just another financial hack (albeit it a VERY BIG one) “talking his positions.” Let’s navigate.
In regard to derivatives, let’s not forget that none other than Buffett defined these financial instruments as ‘weapons of mass destruction.’ (more…)
Posted by Larry Doyle on July 9th, 2009 11:36 AM |
When the Oracle of Omaha speaks, people listen. What is Warren Buffett saying now? What does he see on our economic landscape? How do we prepare? We can let Warren be our guide, but let’s make sure we question him aggressively as we manage our own finances.
ABC News reports, Warren Buffett Backs Second Stimulus:
Buffett cautioned that a second stimulus package, like the first, won’t be “a panacea,” because stimulus packages take time to work. He criticized lawmakers’ work on the first stimulus package, which contained $787 billion in spending.
“Our first stimulus bill … was sort of like taking half a tablet of Viagra and having also a bunch of candy mixed in … as if everybody was putting in enough for their own constituents,” he said. “It doesn’t have really quite the wall that might have been anticipated there.”
Not for nothing, but where was Warren at the time the initial bill was rammed through Congress? Warren is a close economic adviser of Obama’s but he does us no favor by playing his political cards when our country is screaming for real economic leadership.
In regard to the PPIP? What does Warren think about this government program to help banks cleanse their books of toxic assets?
Buffett also criticized the government’s public-private investment plan, through which private investors are supposed to buy so-called toxic assets off the balance sheets of ailing banks that received billions in government aid.
“I do not like the idea of any kind of a plan involving the government where Wall Street makes a lot of money. My plan provided that they would make no money whatsoever, and the American public would make the money. I just think that Wall Street owes the American people one at this point,” he said. (LD’s emphasis)
How about the economy? What does the Oracle see in his crystal ball? The grand swami believes that:
. . . despite the talk of recent economic “green shoots,” he couldn’t predict when the flagging economy would bounce back.
“We are not in a freefall, but we are not in a recovery either,” Buffett said. “We were in a freefall really in the last quarter of last year, starting in the financial markets and spreading to the economy, and we had this huge change in behavior. That change hasn’t changed.”
I concur. Warren is not totally clear, but in so many words he is saying the American economy is adjusting to the lack of a shadow banking system.
How about over the long haul? Does Warren think America will rebound? He is very optimistic, as ABC reports:
“I want to emphasize, we are going to come out of this better than ever,” he said. “I mean the best days of America, by far, lie ahead. But not next week or next month and then, I don’t know exactly when we will come out, but we will come out big time.”
That’s great. I am also eternally optimistic. That said, things do not just happen and we will not have better days without reinstilling strong discipline and values throughout our economy and our country. In my opinion, those disciplines and values need to encompass the following:
1. honesty on where we currently stand across all aspects of our economy and society. Publicize our successes and, more importantly, our failures so we can properly address them.
Do not allow urban education dropout rates of 50% to be swept under the rug. Promote the correlation between those figures, single parent birth rates, income levels, and criminal behaviors. BE HONEST ON THESE TOPICS!!!
2. Expose the lack of integrity and transparency in our financial and political institutions. Hold people accountable!!
That is a good start. Warren has the bully pulpit. Perhaps he could speak aggressively on these topics in the future.
Posted by Larry Doyle on March 2nd, 2009 4:24 PM |
On the heels of the news about AIG, Berkshire, and HSBC, the equity markets have found no support today and are down 4%. While the malaise of the markets has much of the focus, let’s review a few other items that I see on today’s menu:
1. In regard to AIG, current CEO Edward Liddy and former CEO Hank Greenberg have started some public feuding over the nature of AIG’s problems. Greenberg is trying to make the case that the risks underwritten at AIG occurred after his departure. Liddy responded that the culture, the compensation system, and the division housing the bulk of AIG’s risk all developed under Greenberg. Wow!! When our country is screaming for leadership, we have senior executives playing the blame game and pointing fingers. How pathetic!! (more…)
Posted by Larry Doyle on March 2nd, 2009 9:50 AM |
Stock markets are expected to open lower by another 1.5% on the open this morning. What’s driving them lower….again?
1. News that AIG reported an actual 4th quarter 2008 loss of $61 billion. The government will inject ANOTHER $30 billion into this black hole. WHY? Very simply because AIG is the largest holder of CDS (credit default swaps) that serve as insurance for a number of banks and money managers. These CDS cover a wide array of assets but primarily the sub-prime mortgage space. Kevin Doyle of 12th Street Capital, and a guest here on my weekly No Quarter Radio program back in early January, shares that the index that tracks the sub-prime market is at its lows. No surprise there.
While the various media outlets are highlighting this story now, I wrote extensively about AIG and How Does One Lose $125 Billion? on February 24th. I not only wrote about the losses, but also delved into the culture that developed over the years at AIG under Hank Greenberg. Not a pretty picture and seemingly not a lot of integrity in that company. Now we pay. (more…)
Posted by Larry Doyle on November 22nd, 2008 4:10 PM |
The fact that the equity markets totally reversed yesterday’s 5-6% selloff is not the biggest story of the day. In short, 400-500 point swings either way have become so normal as to not be a big deal. But they are a big deal and I will explain why shortly.
At 2:30pm the equity markets were basically unchanged. By 3:45pm the equity markets had rallied by 5-6% primarily on the announcement of Tim Geithner, NY Fed chair, as the nominee to be Treasury Secretary, while the other candidate for that role, Harvard professor and former Tsy Secretary for Bill Clinton, Larry Summers will be a senior White House economic advisor. Well done by Barack to get both on the team.
The markets respect Geithner and he will be easily approved. Summers would have faced some grilling for sexist comments he made while President of Harvard as well as the fact that he has already been Tsy Secy and it would have been viewed as “the more things change the more they stay the same”. Geithner obviously knows where all the bones are buried on Wall St. having worked very closely with Paulson over the entirety of this financial fiasco. The transition should be seamless. Geithner and Paulson have different styles but both are respected by Wall St. even if Paulson is not fully liked by Main St. The markets respect Geithner and this is obviously very important.
Read more here as to “Obama Likely to Pick Fed’s Geithner for Treasury.”
While Geithner and Summers are obviously highly respected they are not Houdini and they will not be able to singlehandedly turn our economy or markets around based on their name alone. (more…)
Posted by Larry Doyle on November 11th, 2008 2:30 PM |
I will admit that, given the current dynamics at work in the economy and the markets, I have become somewhat numbed as to the magnitude of some of the developments. Many of the highlights that I will offer from yesterday’s news would be enormous stories in and of themselves. Taken collectively, they do become overwhelming if we let them.
The markets are down 5-6% on the month. Given the stream of negative news, one might think that the market could be even lower. The fact that markets aren’t even lower is testament to the trillions of dollars that have been put to work by governments around the world.
Let’s review the major stories of November 10, 2008:
1. China implemented a $563bln economic stimulus plan primarily to further develop infrastructure in the country. That figure represents 1/5th of their total GDP. I was surprised to hear that, but it also indicates to me how much growth potential that country possesses. This package had an immediate impact on our equity markets this morning when our markets were up 3%. This package also supported commodities, especially copper which bounced about 5% on the day. Aside from infrastructure, China directed this stimulus package to an area that was badly damaged in a recent earthquake. Last but not least, China offered “tax deductions” on the purchase of certain hard assets. (Are you listening, Barack??)
This stimulus package though indicates to me that it is not likely that many of our domestic companies will likely be receiving capital injections from sovereign wealth funds. With oil at $60, oil producing countries (such as Dubai) may need to support the real estate developers and exporters in their own countries.
2. Fannie Mae reported a loss of $29bln (I’m not going to say earnings when companies lose money) which equates to $12.96 a share vs an expected loss of $1.40 a share. (How can Wall St. analysts maintain credibility when they miss a call by almost 1000%?).
It is amazing how Fannie can rack up losses like this when their own incentive bonuses are not on the line and when collectively Uncle Sam owns them. Aside from this loss, Fannie did announce that they expect losses to continue and to increase into 2009. This to me means they see foreclosures increasing over the next 6 months. More than likely Fannie will have a negative net worth by the end of 2008 requiring an increased capital injection by the U.S. taxpayer. Where does it end!!
Again, this model is broken. The American consumer who is able to get a mortgage is being subsidized at the expense of the taxpayers. Let the private market set the mortgage rates and if the housing market re-prices, so be it. Enough socialized housing finance. (more…)