From a live interview on CNBC today:
"Buffett says he's not concerned at all about deflation, but does think inflation will be a problem in coming years".Also,
Buffett at 9:14 on the video:"I don't worry about deflation at all . . . we won't see deflation in any significant amount in your lifetime".
"[W]e are monetizing the debt. We are using printed paper to pay our government."Hm . . . I guess Buffett is one of Paul Krugman's "bullies":
"All of this raises the question: If inflation isn’t a real risk, why all the claims that it is?
Well, as you may have noticed, economists sometimes disagree. And big disagreements are especially likely in weird times like the present, when many of the normal rules no longer apply.
But it’s hard to escape the sense that the current inflation fear-mongering is partly political, coming largely from economists who had no problem with deficits caused by tax cuts but suddenly became fiscal scolds when the government started spending money to rescue the economy. And their goal seems to be to bully the Obama administration into abandoning those rescue efforts."
Pull up a chair . . .
24 comments:
got popcorn?
Contrarian isn't going to be happy having both the fed and Buffet tell him deflation isn't going to happen in one day.
Yes, the Fed seems to think that the Fed has things under control. Lots of "price stability" in their statement. The markets don't seem to like the statement though. Had been up all day and are now falling.
Wonder what they didn't like?
I don't think it was anything they didn't like just nothing particularly exciting. The fed basically just took a pass on this meeting. They more or less said we will keep doing exactly what we have been doing. With no real guidance on how long things will be this way...
People may have also wanted more certainty about rates. I don't know if you followed the 10 year, but the yield moved bu 10 basis points almost as soon as the meeting ended.
housebuyer,
I like Buffett, but he has become more of a celebrity than an investor these days.
He's getting on in his years and has not made many good investment decisions lately.
I agree that inflation will eventually take hold, but not until after we complete the deflation cycle.
Whatever happened to the guy that used to always end his comments with "got popcorn?" I think he posted under "neil"?
Neil lives in Cali & has his own blog as well.
You'll see his name pop up from time to time on various house-bubble blogs.
"tiredbubblewatcher said...
Whatever happened to the guy that used to always end his comments with "got popcorn?" I think he posted under "neil"?
The guy you were thinking about was Neil/AKA WANNABUY. He ran away once he realized Arlington wasnt going to fall into the "blood in the streets/40% down category" as he predicted in the early going.
I should say, he eventually atoned for that by admitting on his own blog that he was very wrong about Arlington. He eventually admitted 40% down just wasnt in the cards. He didnt say that here because of the near certain insults to be hurled from lance. However, he did admit as much so I give him some credit.
Contrarian,
I haven't followed all investments by Buffett but his investment in Goldman Sachs must have given him a large profit already. I think eventually GE will work out too. Once the dust settles over the next few years, Buffett should still come out strong.
It doesn't particularly matter what the stock of Goldman Sachs or GE does - Buffett locked in 10% on the warrants he bought. They have to pay him I think 120% of his cost to buy them back. He managed to leverage his reputation to get an awesome deal in both of those cases.
contrarian said: "I like Buffett, but...He's getting on in his years and has not made many good investment decisions lately."
Well, it's obvious that you don't follow or know much about Berkshire Hathaway. Preferreds and fixed incomes in Wrigley, GE, GS, TIF, Harley, Swiss RE, Dow, Vulcan, USG (some with equity kickers) in the last 9 months. Brk stands do very well with these investments. And let's not forget about the zero cost strike repricing on the puts he wrote - cost free float for years.
TedK said...
Contrarian,
I haven't followed all investments by Buffett but his investment in Goldman Sachs must have given him a large profit already. I think eventually GE will work out too. Once the dust settles over the next few years, Buffett should still come out strong.
Buffett came out in October 2008 and wrote an Op-Ed in the NYT titled,"Buy America."
Then, only four months later, in his Berkshire annual letter, he flip-flopped and said:
"We're certain, for example, that the economy will be in shambles throughout 2009 - and, for that matter, probably well beyond - but that conclusion does not tell us whether the stock market will rise or fall," he wrote.
So... do you "Buy America," or is the economy in shambles?
In the Op-Ed, Buffett mentions his basic buying philosophy which is: "A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful."
The NYT Op-Ed was published around the time he purchased Goldman Sachs (GS) and GE, etc.
Fortunately for him, GS and GE were able to recover to highs above what Buffett paid for them so he can sell them and make a profit before they collapse again. He lost on ConocoPhillips:
"I still believe the odds are good that oil sells far higher in the future than the current $40 to $50 price. But so far I have been dead wrong. Even if prices should rise, moreover, the terrible timing of my purchase has cost Berkshire several billion dollars," Buffett said.
Buffett has held onto and purchased many stocks recently at or near the top (including GS & GE), instead of the bottom of the market or when the P/E ratio was low.
He has also failed to sell many at (or even near) the top. The Washington Post (WPO), where Buffett is on the Board, topped at $850 in 2007. It collapsed this year to near $300.
He purchased a lot of Burlington Northern (BNI) stock over the last few years when it was climbing to $110. BNI fell into the low $50's earlier this year. The entire Transport index, including BNI, appears to be headed much lower from here.
I am sure Buffett will make a profit on BNI, but his purchases lately have been inconsistent with his "buy and hold" investment philosophy, because he usually buys at low P/E ratios.
Then, there was where Buffett purchased 15 & 20 year put options on the S&P and some foreign indexes. These purchases occurred around the time Buffet published the NYT Op-Ed. It appears now he realizes he may have made an error when he came out with the differing view in the annual Berkshire letter.
DEFENDING THE DERIVATIVES:
The contracts, which insure against stock market declines over a period of many years, total $37.1 billion. They're written against the S&P 500, the U.K.'s FTSE 100, the Euro Stoxx 50 in Europe, and Japan's Nikkei 225.
Berkshire is only required to make any payments when the contracts expire. The first comes due in 2019 and the last in 2028. The mark-to-market, or 'paper', loss on the equity put contracts totals $5.1 billion.
Buffett emphasizes a point that he says is often misunderstood. "For us to lose the full $37.1 billion we have at risk, all stocks in all four indices would have to go to zero on their various termination dates." If the indices are down 25 percent, Berkshire would owe about $9 billion between 2019 and 2028, and would have had use of the $4.9 billion premium all along.
Of course, people like JF will rationalize any decision Buffett makes and worship the ground he walks on. :-)
p.s.,
And since Buffett was right when it came to Buy America, S&P options, ConocoPhillips, etc., etc., etc., he MUST be right when it comes to inflation/deflation, huh?
It's DEFLATION from here on out, until - banks have collapsed, derivatives are out of style, homes are a place to live instead of invest, oil has collapsed, and the stock markets have collapsed - then inflation will take over.
contrarian said: "So... do you "Buy America," or is the economy in shambles?"
It seems you lack a basic understanding of premise of value investing. Maybe a quote from Buffett himself might shed some light on the two statements and why they are not at odds as you believe them to be:
"You pay a very high price in the stock market for a cheery consensus."
Need an extra clue? If you pay a very high price for a cheery concensus on wall st., what price do you pay (for securities) when nobody is cheery, such as when the economy is "in shambles?"
JF,
You don't even make any sense. :-)
The current ANNUAL INFLATION RATE is -1.28%, which is, by definition, DEFLATION.
dshort:
The May 2009 Consumer Price Index for Urban Consumers (CPI-U) is 213.856. The annualized inflation rate computed from this number is -1.28%, which marks the third consecutive month of deflation. The May CPI-U is the lowest annualized rate since the -2.08% of January 1950.
"White supremacist Hal Turner arrested, charged"
http://tinyurl.com/ncnax2
Could this be an attempt by the Government to prevent him from releasing the REAL stress test results?
I wouldn't rule it out!
Buffett says the same thing I said - that it will be many years before we see inflation:
"What we're doing raises the probability significantly of very significant inflation down the road --not this year or next year or the year after that..
"You don't even make any sense. :-)"
I see that smile.
JF may have said it poorly but his point is a good one.
In today's economic climate, someone with cash might find a few ten-baggers. There is a discount for the overall bad news, market psychology.
That said, there were companies that fell large percentages in 2000-2001 and are lower today.
Other companies rebounded strongly and made fortunes for wise or lucky investors. Robert has been making that point with his optimistic statements on RE.
"contrarian said...
Buffett says the same thing I said - that it will be many years before we see inflation:"
Buffet also said we wont see deflation in any significant amount in your lifetime.
Buffett is hugely long bonds and cash, his portfolio would perform very, very well if there was to be deflation (all those insurance contracts are like senior bonds). On the other hand he is very, very exposed to high inflation. His public commentary is meant to shift policy makers to benefit him and him alone, anyone else is incidental.
Unfortunately the FED and our government MUST inflate our way out of this mess.
The problem is that when you aim for 10% inflation, you often get 100%, and when you aim higher - like 30% - which we need to do - you might get 1000%.
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