There will be slim pickings if China loses its appetite for Western debt
Last week I argued that the idea of large Asian economies "decoupling" from the West was unhelpful. Globalization makes nations more interrelated, not less. So export-oriented nations like China and India were always going to feel the impact of a massive Western contraction.
By Liam Halligan
Last Updated: 6:11PM GMT 21 Feb 2009
Comments 0 Comment on this article
But I have to admit that China, with its massive 1,400m population, isn't doing badly. Retail sales remain strong – up 17pc in real terms. Growth has slowed, but GDP still expanded by a pretty spectacular 6.8pc during the fourth quarter of last year.
Japan – that other Asian giant – continues to suffer. Tumbling exports have sparked the worst slump in 35 years. Japanese GDP contracted 3.3pc during the last three months of 2008 – equivalent to a 12.7pc annualized drop. The Nikkei 225 index of leading Japanese shares is down 16pc since the start of 2009. Chinese shares, in contrast, have gained 25pc this year – the best return of any stock market in the world. London's FTSE-100 shed 12pc over the same period, with New York's S&P 500 down 15pc.
Optimism in China has been boosted by the government's Rmb4,000bn (£405bn) support package. Unlike Japan and the cash-strapped Western nations, China is funding its fiscal stimulus using reserves, not extra borrowing.
As the West's predicament has worsened, and China's relative strength has punched through, the political mood music has changed. Just a few weeks ago, in his first speech as US Treasury Secretary, Timothy Geithner accused Beijing of "manipulating" its currency. So what if the renminbi has appreciated more than 20pc against the dollar since 2005, undermining Chinese exports? Wanting to appear tough, "Tiny Tim" attacked China.
Last week's G7 Finance Minister's meeting in Rome produced far more measured tones. "We welcome China's fiscal measures and continued commitment to move to a more flexible exchange rate," purred the post-Summit communiqué.
Hillary Clinton also perfected her "China bashing" rhetoric as she bid for the White House. But now, as US Secretary of State, and on a visit to China, she insists "a positive co-operative relationship" between Beijing and Washington "is vital to peace and prosperity, not only in the Asia-Pacific region, but worldwide".
So, what's different – apart from US politicians no longer being in election mode? Well, behind the scenes, the Chinese government has started demanding guarantees for the $700bn of US Treasury bills on its books.
China has been keeping the States afloat for the best part of a decade, buying up vast quantities of T-bills to fund America's enormous budget and trade deficits. At any point, China could seriously damage the world's largest economy – by refusing to lend more money. So reliant is America on funding from Beijing that, by turning off the cash taps, China could spark an instant run on the dollar.
The Chinese haven't done that as it would harm their dollar-based holdings and they understand we live in an inter-dependent world.
But the ever-greater use of Asian savings to fund the "advanced" economies' deficits is unsustainable. And, as such, we're reaching the point where it will not be sustained. With Western governments intent on printing money and debauching their currencies, the big emerging market creditors – not only China, but Taiwan, Russia, South Korea and others – are now privately raising doubts about their future appetite for Western debt.
This demand drop-off will happen just as the West's dependence on such credit peaks. America and the UK are starting to issue sovereign paper like confetti, to fund highly-irresponsible "recovery programs".
The "rush from risk" that followed the Lehman collapse last September caused the repatriation of billions of dollars invested in emerging markets back to the "safe haven" of the West. That has so far allowed the US and UK authorities to get their larger debt issues away.
But the upcoming volumes are simply enormous. Last year, the US sold bonds to cover its $460bn deficit – around $200bn to foreigners, with China taking the lion's share. But America is on course to issue a staggering $2,000bn of debt in each of the next two years.
Over the same period, the UK will be flogging three times more gilts annually than during 2008. Right across the Western world, crisis-ridden governments will be issuing more and more debt.
Worried about falling currencies and rising inflation, the emerging markets – not least the Chinese – are demanding better returns to buy Western sovereign bonds. This is entirely justified. The debtor governments are weak, confused, and piling loans on top of loans with little sign of future growth.
But how will the Western world react when the creditor countries finally refuse to buy? How will America respond – with resignation, understanding, or aggression? That's the crucial question the world faces over the next three to five years. Just what happens when China stops buying US government debt?
This 'crank' sticks by his prediction that the single currency will not survive
The euro has just surged 2pc against the dollar, up from a three-month low. Why? Certainly not because the eurozone's economic prospects have improved.
New data shows a sharp drop in the 16-member states' PMI index – a bellwether for future growth. The single currency area is still contracting at breakneck speed, and now faces a 1.2pc fall in GDP during the first three months of this year.
So why did the euro strengthen? Because Peer Steinbrueck, Germany's finance minister, indicated the currency union's largest economy would consider bailing-out weaker members if they defaulted on their sovereign debts.
Since the euro was launched in 1999, those of us arguing it would eventually break-up have been dismissed as cranks. But now, by admitting it "will show itself capable of acting", Germany has acknowledged bail-outs may be needed, suggesting collapse is a genuine possibility. The only surprise is that it's taken so long for the politicians to face up to economic reality.
For some time now, eurozone countries with large budget and/or trade deficits have been forced to pay high interest rates when issuing sovereign debt. These problem nations – Portugal, Ireland, Italy, Greece and Spain – are known collectively in global debt markets by the unfortunate acronym of "PIIGS".
The gap between their average 10-year bond yield and the rate needed to sell German government debt – "the PIIGS-spread" – has just topped 200 basis points. Austria has also now joined this high-risk group – given the exposure of its banking system to the emerging markets of Eastern Europe.
German Chancellor Angela Merkel refuses to comment on whether Germany would help eurozone members in trouble. No wonder. As German exports suffer, unemployment is rising. And after years of budgetary restraint, German voters won't take kindly to paying for excesses elsewhere.
But signals coming out of the German Finance Ministry indicate a plan is anyway being hatched – for countries with better credit ratings to sell bonds and then lend the proceeds to the ailing PIIGS. In return for doing this, though, the stronger members will surely want some say over how the money is spent and when taxes will be raised to pay it back.
At that point, eurozone voters will become extremely nervous at an implicit transfer of sovereignty – and the central contradictions of monetary union will be exposed. I've predicted the demise of the single currency since long before it's launch. I'm sticking to that view.
http://www.telegraph.co.uk/finance/comment/liamhalligan/4741093/There-will-be-slim-pickings-if-China-loses-its-appetite-for-Western-debt.html
Sunday 22 February 2009
Finding Affordable Financial Advice
Finding Affordable Financial Advice
by Laura Rowley
Posted on Friday, February 20, 2009, 12:00AM
While the world is chock-full of financial planners, they typically serve clients with $250,000 or more to invest. Sound, affordable advice can be tough to find for less-affluent wage earners. (And in the era of Bernie Madoff, whom can you trust?)
The economic crisis underscores the need to address finances in a holistic way -- debt, savings, investments, insurance, etc. -- and that may mean reaching out for guidance.
Here's a look at some of the efforts to fill the affordable advice void, designed for people who are either novices or have some financial literacy but want a coach to assist them in refining and reaching their goals.
Large Firms
Smith Barney's myFi, a division of Citigroup, recently launched a "Financial Wellness Program," in which clients pay $50 to $100 a month to develop a plan with an advisor. Counselors typically have seven years' experience and some level of financial certification. They act as fiduciaries, and don't get commissions for steering clients into Citi's products.
"We said, ‘Let's wipe away the past and [offer] the opportunity to pay for financial [advice] the way you'd pay for a utility,'" says Andy Sieg, managing director and head of myFi. "It has nothing to do with products and everything to do with advice. It's one price for ongoing coaching across all the issues of your financial life. Even someone on the verge of bankruptcy can call."
The coach walks clients through diagnostic tools to develop goals and an action plan. The client also has access to a series of planning modules over the course of a year, delivered by certified financial planners (CFPs) and other specialists. The coach is typically in touch with the client once a month, with an in-depth session occurring once a quarter. Coaches don't suggest specific products, but they will recommend resources, such as Bankrate.com or LendingTree.com, for mortgage rates.
Waiving Nuisance Fees
Participants don't need to have assets invested with Smith Barney, although clearly the firm is hoping to eventually attract those investments. If a client does bring assets to the table, myFi currently waives brokerage and account fees, as well as other transaction charges, for those with less than $100,000 in managed assets.
"It is extremely transparent in terms of what the customer is paying and what they get for what they pay," says Sieg. "What we heard from clients is they don't necessarily understand pricing in financial services, and clearly have a negative reaction when they feel there are nuisance fees."
Other large financial services firms, including Fidelity, Vanguard, and Charles Schwab, offer advice, but it's generally reserved to retirement or college savings advice. Fidelity, for example, offers free asset allocation advice at one of its 128 centers or on the phone, a spokesman says, adding that the advisors don't earn commission on the products they recommend. The advice is based on the firm's online tools (which some critics say are skewed toward over-saving for retirement).
For clients with less than $100,000 in investable assets, The Vanguard Group offers asset allocation and investment advice, as well as analyses of saving and spending in retirement, for a $1,000 fee. Clients fill out a detailed questionnaire online and then spend an hour on the phone with a fee-only consultant, who makes portfolio recommendations based on Vanguard's mutual funds (but doesn't earn commission on funds.) You can't get services like estate or insurance planning unless you have $500,000 or more of investable assets.
Seminars and Money Clubs
Another approach is to find like-minded peers to keep you on track -- in other words, a money club. "The group is a collective conscience that can increase your knowledge by sharing and increase the odds that you do your homework and follow through on actions," explains Diahann Lassus, president of the National Association of Personal Financial Advisors (NAPFA), a group of fee-only professionals.
Money clubs have been springing up nationwide, with many non-profit groups focused on women. Two veteran organizations are the San Diego-based Women's Institute for Financial Education (which has trademarked "money club") and New York-based Savvy Ladies, which had 5,000 women participate in clubs and educational programs last year.
Stacy Francis, a fee-only CFP in New York, founded Savvy Ladies in 2002, and she donates 20 percent of her firm's income to help run the non-profit. For an annual membership fee of $50 to $160, members get access to 18 to 24 workshops and seminars a year, as well as help finding or starting a club. They also get to have one-on-one monthly phone sessions with a CFP who works pro bono.
"Our goal was to create clubs across the nation, and we have some up and running -- but not as many as I had hoped," Francis says. "The challenge has been finding champions willing to do the work -- to find a space to meet and reach out to other members of the community who might want to participate."
If you're interested in starting a club, see these guidelines.
The USDA's Cooperative State Research, Education, and Extension Service brings together the teaching, research, and extension activities of 103 land-grant universities and the U.S. Department of Agriculture. CES is a public-funded, non-formal educational system that extends research-based information to nearly 3,150 county offices. (To find one near you, click here.) The Cooperative Extension Service also offers extension.org, which allows consumers to submit financial questions and receive answers from educators by email.
You can also access a personal finance course online for free through the OpenCourseWare Consortium. It's a group of about 250 universities internationally -- including 17 in the U.S. -- that offers course materials, lecture notes, tests, and more.
Crown Financial Ministries, which has roots in the mid-1970s, offers programs nationally and internationally; its curriculum is founded in evangelical Christian teaching. The Bible-based programs emphasize eliminating all debt and tithing 10 percent of one's income.
Financial guru Dave Ramsey, who also layers Christian messages in his teachings, has trained an army of instructors through his Financial Peace University. They offer a 13-week financial course for $99 around the country.
Financial author Lynn Khalfani-Cox is sponsoring her own Zero-Debt Tour at churches across the country. "The requests have come into us specifically from a lot of churches over the last two years," she says. "People are looking for help and for hope -- and in times of crisis, they do turn to faith."
Q and A
Finally, DIY investors seeking answers to more-narrow financial questions can find a fee-only planner who charges by the hour at garrettfinancialnetwork.com, or use a Web site such as myfinancialadvice.com, which answers questions for a fee. Additionally, NAPFA is touring the country with Your Money Bus, in which members offer free financial planning advice to consumers in various cities around the country, through June 3.
Lassus says no matter which educational avenue a novice chooses, the key is to reach out: "Just like the odds are much higher that you will actually reach an objective when you write it down, they are also much higher when you share your objectives with someone else."
http://finance.yahoo.com/expert/article/moneyhappy/143028
Also read: Personal Money http://www.invest.com.my/game/intro/
Major indexes fall more than 6 percent for week
Major indexes fall more than 6 percent for week
Friday February 20, 7:32 pm ET
By Tim Paradis, AP Business Writer
Wall Street ends another terrible week; major indexes drop by more than 6 percent
NEW YORK (AP) -- Wall Street ended another terrible week Friday, leaving major indexes down more than 6 percent as investors worried that the recession will persist for at least the rest of the year and that government intervention will do little to hasten a recovery.
Investors shaved 100 points off the Dow Jones industrial average just a day after the market's best-known indicator dropped to its lowest level since the depths of the last bear market, in 2002. Stocks of struggling financial companies were among the hardest hit.
The Standard & Poor's 500 index, the barometer most closely watched by market pros, came close to its lowest point in nearly 12 years.
"Right now, more than a crisis in mortgages or in housing, we have a crisis in confidence. That is biggest problem in trying to analyze the current market," said James Stack, president of market research firm InvesTech Research in Whitefish, Mont. "You cannot analyze psychology."
Wall Street has been sinking lower as investors come to terms with the fact that the optimism behind a late-2008 rally was clearly unfounded. Companies' forecasts for this year, on top of a dismal series of fourth-quarter earnings reports, pounded home the reality that no one can determine when the recession will end.
"It was a market that was built on that hope, and what we're seeing now is an unwinding of that," said Todd Salamone, director of trading and vice president of research at Schaeffer's Investment Research in Cincinnati, of the rally from late November to early January.
The disappointment seen this week arose from the market's growing recognition that the Obama administration's multibillion-dollar stimulus and bailout programs are unlikely to turn the economy around anytime soon.
"There were a lot of people that were banking on Washington to get us out of this. I don't know if there is anything Washington can do," Salamone said. He said the global economy is going through the tedious process of reducing borrowing and working through bad debt -- something government help can't speed up.
With the week erasing whatever shreds of hope the market had, there is virtually no chance of a rally on Wall Street. What the market might see is a blip upward -- but blips tend to evaporate quickly.
That's what happened Friday. Stocks erased some of their losses after White House press secretary Robert Gibbs doused fears that the government would nationalize crippled banks. Investors who worried about seeing their shares wiped out by a government takeover welcomed the news, but it didn't ease broader concerns about the economy.
The Dow Jones industrials briefly went into positive territory, but quickly turned down again.
Salamone said investors had been too hopeful in late 2008 and at the start of this year that the new administration would be able to swiftly disentangle the economy.
The Dow industrials fell 100.28 points, or 1.3 percent, to 7,365.67 after earlier falling more than 215 points. On Thursday, the Dow broke through its Nov. 20 low of 7,552.29, and closed at its lowest level since Oct. 9, 2002.
The Dow's 6.2 percent slide for the week was its worst performance since the week ended Oct. 10, when it lost 18.2 percent.
The Standard & Poor's 500 index on Friday fell 8.89, or 1.14 percent, to 770.05. The benchmark most watched by traders came within less than 2 points of its Nov. 20 close of 752.44, which was its lowest since April 1997. It remains above its Nov. 21 trading low of 741.02.
The Nasdaq composite index fell 1.59, or 0.11 percent, to 1,441.23.
For the week, the S&P fell 6.9 percent, while the Nasdaq lost 6.1 percent.
Declining issues outnumbered advancers by about 3 to 1 on the New York Stock Exchange, where consolidated volume came to a heavy 8.12 billion shares as options contracts expired. Volume on Thursday came to 5.64 billion shares.
The Russell 2000 index of smaller companies fell 5.75, or 1.4 percent, to 410.96.
Other world indicators also fell sharply. Britain's FTSE 100 declined 3.2 percent, Germany's DAX index tumbled 4.8 percent, and France's CAC-40 fell 4.3 percent.
Shares of financial bellwethers Citigroup Inc. and Bank of America Corp. fell on worries the government will have to take control of them. Citigroup tumbled 22 percent, while Bank of America fell 3.6 percent. The stocks were down as much as 36 percent during the session.
The fears about the banks are hurting shareholders of those companies and dragging down the rest of the market because the broader economy can't function properly when banks are unable to lend at more normal levels.
"Financing is the blood which runs through our nation's veins. It's what keeps us alive," said Lawrence Creatura, a portfolio manager at Federated Clover Investment Advisors.
He said the talk of nationalizing banks only underscores the troubles with the economy.
"Things are clearly not normal. It's not healthy. The patient was on life support, and now what we're talking about getting out the paddle with respect to nationalization," Creatura said.
As investors dropped out of stocks, safer investments like Treasury debt and gold rose. The price of the benchmark 10-year Treasury note rose sharply, sending its yield down to 2.79 percent from 2.86 percent. The yield on the three-month T-bill, considered one of the safest investments, fell to 0.26 percent from 0.30 percent late Thursday.
Gold broke above $1,000, closing at $1,002.20 an ounce on the New York Mercantile Exchange.
Investors are looking desperately at any safe havens simply because the stock market, which rises and falls on investors' expectations for the future, sees only trouble ahead.
"There's still a big fear factor syndrome," said Michael Strauss, chief economist and market strategist at Commonfund. "There is a focus on what is happening here and now instead of six months to nine months from now."
The Dow Jones industrial average closed the week down 484.74, or 6.2 percent, at 7,365.67. The Standard & Poor's 500 index fell 56.79, or 6.9 percent, to 770.05. The Nasdaq composite index fell 93.13, or 6.1 percent, closing at 1,441.23.
The Russell 2000 index, which tracks the performance of small company stocks, declined 37.40, or 8.3 percent, to 410.96.
The Dow Jones Wilshire 5000 Composite Index -- a free-float weighted index that measures 5,000 U.S. based companies -- ended at 7,802.27, down 583.47, or 6.96 percent, for the week. A year ago, the index was at 13,758.35.
http://biz.yahoo.com/ap/090220/wall_street.html
Friday February 20, 7:32 pm ET
By Tim Paradis, AP Business Writer
Wall Street ends another terrible week; major indexes drop by more than 6 percent
NEW YORK (AP) -- Wall Street ended another terrible week Friday, leaving major indexes down more than 6 percent as investors worried that the recession will persist for at least the rest of the year and that government intervention will do little to hasten a recovery.
Investors shaved 100 points off the Dow Jones industrial average just a day after the market's best-known indicator dropped to its lowest level since the depths of the last bear market, in 2002. Stocks of struggling financial companies were among the hardest hit.
The Standard & Poor's 500 index, the barometer most closely watched by market pros, came close to its lowest point in nearly 12 years.
"Right now, more than a crisis in mortgages or in housing, we have a crisis in confidence. That is biggest problem in trying to analyze the current market," said James Stack, president of market research firm InvesTech Research in Whitefish, Mont. "You cannot analyze psychology."
Wall Street has been sinking lower as investors come to terms with the fact that the optimism behind a late-2008 rally was clearly unfounded. Companies' forecasts for this year, on top of a dismal series of fourth-quarter earnings reports, pounded home the reality that no one can determine when the recession will end.
"It was a market that was built on that hope, and what we're seeing now is an unwinding of that," said Todd Salamone, director of trading and vice president of research at Schaeffer's Investment Research in Cincinnati, of the rally from late November to early January.
The disappointment seen this week arose from the market's growing recognition that the Obama administration's multibillion-dollar stimulus and bailout programs are unlikely to turn the economy around anytime soon.
"There were a lot of people that were banking on Washington to get us out of this. I don't know if there is anything Washington can do," Salamone said. He said the global economy is going through the tedious process of reducing borrowing and working through bad debt -- something government help can't speed up.
With the week erasing whatever shreds of hope the market had, there is virtually no chance of a rally on Wall Street. What the market might see is a blip upward -- but blips tend to evaporate quickly.
That's what happened Friday. Stocks erased some of their losses after White House press secretary Robert Gibbs doused fears that the government would nationalize crippled banks. Investors who worried about seeing their shares wiped out by a government takeover welcomed the news, but it didn't ease broader concerns about the economy.
The Dow Jones industrials briefly went into positive territory, but quickly turned down again.
Salamone said investors had been too hopeful in late 2008 and at the start of this year that the new administration would be able to swiftly disentangle the economy.
The Dow industrials fell 100.28 points, or 1.3 percent, to 7,365.67 after earlier falling more than 215 points. On Thursday, the Dow broke through its Nov. 20 low of 7,552.29, and closed at its lowest level since Oct. 9, 2002.
The Dow's 6.2 percent slide for the week was its worst performance since the week ended Oct. 10, when it lost 18.2 percent.
The Standard & Poor's 500 index on Friday fell 8.89, or 1.14 percent, to 770.05. The benchmark most watched by traders came within less than 2 points of its Nov. 20 close of 752.44, which was its lowest since April 1997. It remains above its Nov. 21 trading low of 741.02.
The Nasdaq composite index fell 1.59, or 0.11 percent, to 1,441.23.
For the week, the S&P fell 6.9 percent, while the Nasdaq lost 6.1 percent.
Declining issues outnumbered advancers by about 3 to 1 on the New York Stock Exchange, where consolidated volume came to a heavy 8.12 billion shares as options contracts expired. Volume on Thursday came to 5.64 billion shares.
The Russell 2000 index of smaller companies fell 5.75, or 1.4 percent, to 410.96.
Other world indicators also fell sharply. Britain's FTSE 100 declined 3.2 percent, Germany's DAX index tumbled 4.8 percent, and France's CAC-40 fell 4.3 percent.
Shares of financial bellwethers Citigroup Inc. and Bank of America Corp. fell on worries the government will have to take control of them. Citigroup tumbled 22 percent, while Bank of America fell 3.6 percent. The stocks were down as much as 36 percent during the session.
The fears about the banks are hurting shareholders of those companies and dragging down the rest of the market because the broader economy can't function properly when banks are unable to lend at more normal levels.
"Financing is the blood which runs through our nation's veins. It's what keeps us alive," said Lawrence Creatura, a portfolio manager at Federated Clover Investment Advisors.
He said the talk of nationalizing banks only underscores the troubles with the economy.
"Things are clearly not normal. It's not healthy. The patient was on life support, and now what we're talking about getting out the paddle with respect to nationalization," Creatura said.
As investors dropped out of stocks, safer investments like Treasury debt and gold rose. The price of the benchmark 10-year Treasury note rose sharply, sending its yield down to 2.79 percent from 2.86 percent. The yield on the three-month T-bill, considered one of the safest investments, fell to 0.26 percent from 0.30 percent late Thursday.
Gold broke above $1,000, closing at $1,002.20 an ounce on the New York Mercantile Exchange.
Investors are looking desperately at any safe havens simply because the stock market, which rises and falls on investors' expectations for the future, sees only trouble ahead.
"There's still a big fear factor syndrome," said Michael Strauss, chief economist and market strategist at Commonfund. "There is a focus on what is happening here and now instead of six months to nine months from now."
The Dow Jones industrial average closed the week down 484.74, or 6.2 percent, at 7,365.67. The Standard & Poor's 500 index fell 56.79, or 6.9 percent, to 770.05. The Nasdaq composite index fell 93.13, or 6.1 percent, closing at 1,441.23.
The Russell 2000 index, which tracks the performance of small company stocks, declined 37.40, or 8.3 percent, to 410.96.
The Dow Jones Wilshire 5000 Composite Index -- a free-float weighted index that measures 5,000 U.S. based companies -- ended at 7,802.27, down 583.47, or 6.96 percent, for the week. A year ago, the index was at 13,758.35.
http://biz.yahoo.com/ap/090220/wall_street.html
Saturday 21 February 2009
Buffett's metric says it's time to buy
Buffett's metric says it's time to buy
According to investing guru Warren Buffett, U.S. stocks are a logical investment when their total market value equals 70% to 80% of Gross National Product.
By Carol J. Loomis and Doris Burke
February 4, 2009: 9:49 AM ET
(Fortune Magazine) -- Is it time to buy U.S. stocks?
According to both this 85-year chart and famed investor Warren Buffett, it just might be. The point of the chart is that there should be a rational relationship between the total market value of U.S. stocks and the output of the U.S. economy - its GNP.
Fortune first ran a version of this chart in late 2001 (see "Warren Buffett on the stock market"). Stocks had by that time retreated sharply from the manic levels of the Internet bubble. But they were still very high, with stock values at 133% of GNP. That level certainly did not suggest to Buffett that it was time to buy stocks.
But he visualized a moment when purchases might make sense, saying, "If the percentage relationship falls to the 70% to 80% area, buying stocks is likely to work very well for you."
Well, that's where stocks were in late January, when the ratio was 75%. Nothing about that reversion to sanity surprises Buffett, who told Fortune that the shift in the ratio reminds him of investor Ben Graham's statement about the stock market: "In the short run it's a voting machine, but in the long run it's a weighing machine."
Not just liking the chart's message in theory, Buffett also put himself on record in an Oct. 17 New York Times op-ed piece, saying that he was personally buying U.S. stocks after a long period of owning nothing (outside of Berkshire Hathaway (BRKB) stock) but U.S. government bonds.
He said that if prices kept falling, he expected to soon have 100% of his net worth in U.S. equities. Prices did keep falling - the Dow Jones industrials have dropped by about 10% since Oct. 17 - so presumably Buffett kept buying. Alas for all curious investors, he isn't saying what he bought.
Also read:
According to both this 85-year chart and famed investor Warren Buffett, it just might be. The point of the chart is that there should be a rational relationship between the total market value of U.S. stocks and the output of the U.S. economy - its GNP.
Fortune first ran a version of this chart in late 2001 (see "Warren Buffett on the stock market"). Stocks had by that time retreated sharply from the manic levels of the Internet bubble. But they were still very high, with stock values at 133% of GNP. That level certainly did not suggest to Buffett that it was time to buy stocks.
But he visualized a moment when purchases might make sense, saying, "If the percentage relationship falls to the 70% to 80% area, buying stocks is likely to work very well for you."
Well, that's where stocks were in late January, when the ratio was 75%. Nothing about that reversion to sanity surprises Buffett, who told Fortune that the shift in the ratio reminds him of investor Ben Graham's statement about the stock market: "In the short run it's a voting machine, but in the long run it's a weighing machine."
Not just liking the chart's message in theory, Buffett also put himself on record in an Oct. 17 New York Times op-ed piece, saying that he was personally buying U.S. stocks after a long period of owning nothing (outside of Berkshire Hathaway (BRKB) stock) but U.S. government bonds.
He said that if prices kept falling, he expected to soon have 100% of his net worth in U.S. equities. Prices did keep falling - the Dow Jones industrials have dropped by about 10% since Oct. 17 - so presumably Buffett kept buying. Alas for all curious investors, he isn't saying what he bought.
Also read:
Buffett: The Complete PBS Interview Transcript
http://www.cnbc.com/id/28800287/
Thursday, 22 Jan 2009
Warren Buffett "Not Opposed" to Berkshire Hathaway Stock Buyback: The Complete PBS Interview Transcript
Posted By: Alex Crippen
Topics:Stock Buybacks Investment Strategy Stock Market Bernard Madoff Barack Obama Inflation Economy (U.S.) Mergers & Acquisitions Warren Buffett
Companies:Dow Chemical Co Wm Wrigley Jr Co Constellation Energy Group Inc Goldman Sachs Group Inc General Electric Berkshire Hathaway Inc.
Warren Buffett, in a taped interview with Susie Gharib of National Business Report on PBS
Warren Buffett sat down recently for a taped interview with Susie Gharib of Nightly Business Report to mark the PBS program's 30th anniverary tonight.
In the conversation, Buffett says the credit crunch is easing but business conditions are getting worse. He also hints Berkshire Hathaway might buy back some of its stock since it has fallen so sharply from its highs.
WARREN BUFFETT TO PBS: CREDIT CRUNCH "GETTING A LITTLE BETTER" BUT BUSINESS IS GETTING WORSE
Buffett and Gharib cover a number of other subjects, including how much advice he's giving President Obama, the government's attempts to stimulate the economy, and the Bernard Madoff scandal.
Portions of their conversation will be shown on NBR tonight (Thursday) and tomorrow (Friday.)
Video of the complete 24-minute conversation has been posted on the program's website.
This is a transcript of that entire interview, as provided to us by NBR. CNBC.com has added links and done some light editing. It is also available as a PDF download.
SUSIE GHARIB, ANCHOR, NIGHTLY BUSINESS REPORT: Are we overly optimistic about what President Obama can do?
WARREN BUFFETT, CHAIRMAN, BERKSHIRE HATHAWAY: Well, I think if you think that he can turn things around in a month or three months or six months and there’s going to be some magical transformation since he took office on the 20th, that can’t happen and wouldn’t happen. So you don’t want to get into Superman-type expectations. On the other hand, I don’t think there’s anybody better than you could have had, have in the presidency than Barack Obama at this time. He understands economics. He’s a very smart guy. He’s a cool rational-type thinker. He will work with the right kind of people. So you’ve got the right person in the operating room, but it doesn’t mean the patient is going to leave the hospital tomorrow.
GHARIB: Mr. Buffett, I know that you’re close to President Obama. What are you advising him? BUFFETT: Well, I’m not advising him really, but if I were I wouldn’t be able to talk about it. I am available any time. But he’s got all kinds of talent right back there with him in Washington. Plus he’s a talent himself so if I never contributed anything for him, fine.
GHARIB: But I know that during the election that you were one of his economic advisors, what were you telling him?
BUFFETT: I was telling him business was going to be awful during the election, period, and that we were coming up in November to a terrible economic scene which would be even worse probably when he got inaugurated. So far I’ve been either lucky or right on that. But he’s got the right ideas. He believes in the same things I believe in. America’s best days are ahead and that we’ve got a great economic machine, it's sputtering now. And he believes there could be a more equitable job done in distributing the rewards of this great machine. But he doesn’t need my advice on anything.
GHARIB: How often do you talk to him?
BUFFETT: Not often, not often, no, no, and it will be less often now that he’s in the office. He’s got a lot of talent around him.
GHARIB: What’s the most important thing you think he needs to fix?
BUFFETT: Well the most important thing to fix right now is the economy. We have a business slowdown, particularly after October 1st, it was sort of on a glide path downward up til roughly October 1st, and then it went into a real nosedive. In fact, in September I said we were in an economic Pearl Harbor and I’ve never used that phrase before. So he really has a tough economic situation and that’s his number one job. Now his number one job always is to keep America safe. That goes without saying.
GHARIB: But when you look at the economy, what do you think is the most important thing he needs to fix in the economy?
BUFFETT: Well, we’ve had to get the credit system partially fixed in order for the economy to have a chance of starting to turn around. But there’s no magic bullet on this. They’re going to throw everything from the government they can in. As I said, the Treasury is going all in, the Fed, and they have to, and that isn’t necessarily going to produce anything dramatic in the short-term at all. Over time, the American economy is going to work fine.
GHARIB: There is considerable debate, as you know, about whether President Obama is taking the right steps so we don’t get in this kind of economic mess again. Where do you stand on that debate?
BUFFETT: Well, I don’t think the worry right now should be about the next one. The worry should be about the present one. Let’s get this fire out and then we’ll figure out fire prevention for the future. But really, the important thing to do now is to figure out how we get the American economy restarted and that’s not going to be easy and it's not going to be soon, but it's going to get done.
GHARIB: But there is debate about whether there should be fiscal stimulus, whether tax cuts work or not. There is all of this academic debate among economists. What do you think? Is that the right way to go with stimulus and tax cuts?
BUFFETT: The answer is nobody knows. The economists don’t know. All you know is you throw everything at it and whether it’s more effective if you’re fighting a fire to be concentrating the water flow on this part or that part. You’re going to use every weapon you have in fighting it. And people, they do not know exactly what the effects are. Economists like to talk about it, but in the end they’ve been very, very wrong and most of them in recent years on this. We don’t know the perfect answers on it. What we do know is to stand by and do nothing is a terrible mistake or to follow Hoover-like policies would be a mistake and we don’t know how effective, in the short-run, we don’t know how effective this will be and how quickly things will right themselves. We do know over time the American machine works wonderfully and it will work wonderfully again.
GHARIB: But are we creating new problems?
BUFFETT: Always.
GHARIB: How worried are you about these multi-trillion dollar deficits?
BUFFETT: You can’t just do one thing in economics. Anytime somebody says 'I'm going to do this', you have to say, 'And then what?' And there is no free lunch, so if you pour money at this problem, you do have aftereffects. You create certain problems. I mean you are giving a medicine dosage to the patient on a scale that we haven’t seen in this country. And there will be aftereffects and they can’t be predicted exactly. But certainly the potential is there for inflationary consequences that would be significant.
GHARIB: We all know that in the long-run everything is going to work out, but as you analyze President Obama’s economic plan, what do you think are the trade-offs? What are the consequences?
BUFFETT: Well, the trade-off, the trade-off basically is that you risk setting in motion forces that will be very hard to stop in terms of inflation down the road and you are creating an imbalance between revenues and expenses in the government that is a lot easier to create than it will be to correct later on. But those are problems worth taking on, but you don’t get a free lunch.
GHARIB: What about the regulatory system? Is it a matter of making new rules or simply doing a better job at enforcing the rules we already have?
BUFFETT: Well, there are probably some new rules needed, but the regulatory system, I don’t think, could have stopped this. Once you get the bubble going, once the American public, the U.S. Congress, all the commentators, the media, everybody else, started thinking house prices could go nothing but up, you were creating a bubble that would have huge consequences because the asset class was so big. I mean, you had 22 trillion dollars, probably, worth of homes. It was the biggest asset of most American families and you let them borrow 100% of, in many cases, of the price of those and you let them refi up to where they kept taking out more and more and treating it as an ATM machine. The bubble was going to happen.
GHARIB: But everybody is talking about, OK, we need more rules, we have to enforce them, we need to go after every institution, every financial market. Do you think that new rules will do the trick or do we have enough rules, we just have to police better?
BUFFETT: Well, you can have a rule, for example, to prevent another real estate bubble. You just require that anybody bought a house to put 20% down and make sure that the payments were not more than a third of their income. Now we would not have a big bust ever in real estate again, but we also would have people screaming that you’re denying home ownership to all these people, that you got a home yourself and now you’re saying a guy with a 5% down payment shouldn’t get one. So I think it’s very tough to put rules out. I mean, I can design rules that will prevent it but it will have other consequences. It’s like I say, in economics you can’t just do one thing. And where the balance is struck on that, will be a political question. My guess is that it won’t be struck particularly well, but that’s just the nature of politics.
GHARIB: You’ve said that we’re in an economic Pearl Harbor, so how bad are things really?
BUFFETT: They’re bad, they’re bad. The credit situation is getting a little better now. Things have loosened up from a month ago in the corporate debt market. But the rate of business descent is at a pretty alarming pace. I mean, there is no question things have really slowed down. Peoples’ buying habits have changed. Fear has taken over and fear is a tough thing to fight because you can’t go on television and say don’t be afraid, that doesn’t work. People will get over it. They got greedy and they got over being greedy. But it took a while to get over being greedy and now the pendulum has swung way over to the fear side. They’ll get over that and we just hope that they don’t go too far back to the greed side.
GHARIB: What’s your view on the recession? How much longer is it going to last?
BUFFETT: I don’t know. I don’t know. I don’t know the answer to these things. The only thing is I know that I don’t know. Maybe other people think they know, but I have no idea.
GHARIB: The last time we talked, you said back in the spring, you said the recession is not going to be a short-haul thing. What is your feel for it right now?
BUFFETT: It isn’t going to be short, but I just don’t know, Susie. If I knew that. There’s no way of knowing.
GHARIB: Berkshire Hathaway is in a lot of businesses that are economically sensitive, like furniture, paint, bricks. Do you see any signs of a pick-up?
BUFFETT: No. No. The businesses that are either construction or housing-related, or that are just plain consumer businesses, they’re doing very, very poorly. The American consumer has stepped back, big time, and it’s contagious and there’s a feedback mechanism because once you hear about this then you get fearful and then don’t do things at all. And that will end at a point, but it hasn’t ended at this point. Now fortunately our two biggest businesses are not really tied that way - in insurance and in our utility business we don’t feel that, of course, those are different things. But everything that’s consumer related feels it big time.
GHARIB: My question to you is, do you think that the psyche of the American consumer has changed, becoming more savers than spenders?
BUFFETT: Well, it certainly has at this point and my guess is that continues for quite a while. What it will be five years from now, I have no idea. I mean the American consumer when they’re confident they spend and they’re not confident now, and they’ve cut it back. But who knows whether.. I doubt that that’s a permanent reset of behavior, but I think it’s more than a one-day or one-week or one-month wonder in that case.
GHARIB: Is that a bad thing?
BUFFETT: Well, it just depends who the consumer is. I mean, consumer debt within reason makes sense. It makes sense to take out a mortgage and own a home, particularly if you aren’t buying during a bubble. You are normally going to see house price appreciation if you don’t buy during a time when people are all excited about it. So I don’t have any moral feelings about debt as to how people should.. I think people should only take on what they can handle though and that gets to their income level.
GHARIB: Let me ask it this way, Americans saving more may be good for consumers, but is that bad for business?
BUFFETT: Well, it’s certainly bad for business in the short-term. Now whether it’s better for business over a 10 or 20 year period... If the American public gets itself in better shape financially that presumably is good for business down the road, but while they’re getting themselves in better shape, it isn't much fun for the merchant on Main Street.
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GHARIB: One thing that Americans aren’t buying these days are stocks. Should they be buying? BUFFETT: Well, just as many people buy a stock everyday as sell one so there are people buying stocks everyday and we’re buying stocks as we go along. If they’re buying into a business they understand at a sensible price they should be buying them. That’s true at any time. There are a lot more things selling at sensible prices now than there were two years ago. So clearly it’s a better time to buying stocks than a couple of years ago. Is it better than tomorrow? I have no idea.
GHARIB: This financial crisis has been extraordinary in so many ways. How has it changed your approach to investing?
BUFFETT: Doesn’t change my approach at all. My approach to investing I learned in 1949 or ‘50 from a book by Ben Graham and it’s never changed.
GHARIB: So many people I have talked to this past year say this was unprecedented, the unthinkable happened. And that hasn’t at all impacted your philosophy on this?
BUFFETT: No, and if I were buying a farm, I wouldn’t change my ideas about how to buy a farm or an apartment house or a business, and that’s all a stock is, it’s part of a business. So if I were going to buy stock in a private business here in Omaha, I’d look at it just like I would have looked at it two years ago and I’ll look at it the same way two years from now. I look at how much I am getting for my money, how good the management is, how the competitive position of that business compares to others, how durable it is and just fundamental questions. The stock market is, you can forget about that. Any stock I buy I will be happy owning it if they close the stock market for five years tomorrow. In other words I am buying a business. I’m not buying a stock. I’m buying a little piece of a business, just like I buy a farm. And that doesn’t change. And all the newspaper headlines of the world don’t change that. It doesn’t mean you can’t buy it cheaper tomorrow. It may turn out that way. But the real question is did I get my money’s worth when I bought it?
GHARIB: One of your famous investing principles is, “Be fearful when others are greedy and greedy when others are fearful.” So is this the time to be greedy, right?
BUFFETT: Yeah. My greed quotient has risen as stocks have gone down. There’s no question about that. The cheaper something gets that you’re going to buy, the happier you feel, right? You’re going to buy groceries the rest of your life; you want grocery prices to go up or down? You want them to go down. And if they go down you don’t think, gee, I got those groceries sitting in my cabinet at home and I’ve lost money on those. You think I am buying my groceries cheaper, I am going to keep buying groceries. Now if you’re a seller, net, obviously you like prices higher. But most people listening to this program, certainly I, myself, and Berkshire Hathaway, we’re going to be buying businesses over time. We like the idea of businesses getting cheaper.
GHARIB: So where do you see the opportunities in the stock market right now?
BUFFETT: That one I wouldn’t tell you about.
GHARIB: Let me throw out some sectors and you just tell me quickly how you feel about these sectors.
BUFFETT: Susie, I am not going to recommend anything.
GHARIB: Even in general? For example, a lot of people now are looking at infrastructure companies. Is that a sector that you find attractive?
BUFFETT: I wouldn’t have any comment. What they ought to do is look at businesses that they understand, they‘d be happy owning for years if there was never a quote on the stock. Just like they buy in privately into a business in their hometown, they ought to forget all about what somebody says is going to be hot next year or the year after, whatever. Because what’s going to be hot, you may be paying twice as much for as something that’s not going to be hot. You don’t want to think in terms of what’s going to be good next year, you want to think in terms of what’s a good business to be in and then buy it at an attractive price. And then you can’t lose.
GHARIB: Do you see more opportunities in the U.S. compared to overseas?
BUFFETT: Well, I am more familiar with the U.S. We have such a big market. I see lots of opportunities here and I see lots of opportunities around the world.
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GHARIB: Let me ask you a little bit about investor confidence. Investor confidence was so shattered last year. What do you think it's going to take to restore confidence?
BUFFETT: If people were dependent on the stock market going up to be confident, they’re in the wrong business. They ought to be confident because they look at a business and they think, I got my money’s worth. They ought to be confident if they buy a farm, not on whether they get a quote the next day on the farm, but they ought to look at what the farm produces, how many bushels an acre do they get out of their corn or soybeans and what prices do they bring. So they ought to look to the business as to whether to be confident compared to the price that they paid and they ought to forget about what anybody is saying, including me on television, or what they’re reading in the paper. That’s got nothing to do with whether they made a good decision or not. What’s got to do with whether they made a good decision is what kind of business they bought and what they paid for it.
Bernard Madoff
GHARIB: People are reeling from this whole Bernie Madoff scandal. What would you say to people who have lost trust in the financial system?
BUFFETT: They shouldn’t have lost, you don’t need to lose trust in the American system. If you decide to buy a farm and you pay the right price for it, you don’t need to lose faith in American agriculture, you know, because the prices of farms go down.
GHARIB: But you know what I’m saying. This was on top of everything else. People lost money last year in companies that they thought were rock solid. As I said, the unthinkable happened, and then on top of it, this whole Bernie Madoff scandal. It has undermined people’s sense of well-being about our system. So what do you say to people who have lost trust?
BUFFETT: Well, they may be better off not being in equities. If they’re really depending on somebody else and they don’t know anything about the somebody else, they’ve got a problem. They shouldn’t do that. I mean there are going to be crooks out there and this guy was a crook on a scale that we’ve never seen before. But you ought to know who you’re dealing with. But if you’re going to buy a stock in some business that’s been around for a 100 years and will be around for 100 more years and it’s not a leveraged company and it sells some important product and it’s got a strong competitive position and you buy it at a reasonable multiple of earnings, you don’t have to worry about crooks, you’re going to do fine.
GHARIB: Is there any take away lessons from the Bernie Madoff story?
BUFFETT: Well, he was a special case. I mean here is a guy who had a good reputation for 30 years or something, and the trust of a lot of people around him. So it’s very easy to draw assurances from the fact that if fifty other people that are prominent and intelligent trust the guy, that maybe you should trust him too. But I wouldn’t put my trust in a single individual like that. I would put my trust in a very good business. I would want a business that was so good that if a so-so guy was running it, it would still certainly do well and there are plenty of businesses that are like that.
GHARIB: So, are you saying that investing has gotten so complicated that investors should stick to what they know? Is that the take-away lesson?
BUFFETT: You should always stick to what you know. I say the 'know-nothing investor' and there’s nothing wrong with being a 'know-nothing investor.' I mean, I spend 60 hours a week thinking about investments, and most people have got jobs and other things to do. They can buy index funds. And they’re not going to do better than an index fund if they go around and trust some guy that's promising them very high returns. If you buy a cross section of American business and you don’t buy it during a period when everybody is all enthused about stock, you’re going to do fine over 10 or 20 years. If you buy something with the idea that you’re going to do fine over 10 months, you may or may not. I do not know what stock is going be up 10 months from now, and I never will.
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GHARIB: What about Berkshire Hathaway stock? Were you surprised that it took such a hit last year, given that Berkshire shareholders are such buy and hold investors?
BUFFETT: Well, most of them are. But in the end, our price is figured relative to everything else. So the whole stock market goes down 50 percent, we ought to go down a lot because you can buy other things cheaper. I‘ve had three times in my lifetime, since I took over Berkshire, when Berkshire stock’s gone down 50 percent. In 1974, it went from $90 to $40. Did I feel badly? No, I loved it. I bought more stock. So, I don’t judge how Berkshire is doing by its market price, I judge it by how our businesses are doing.
GHARIB: Is there a price at which you would buy back shares of Berkshire? $85,000? $80,000?
BUFFETT: (Laughs.) I wouldn’t name a number. If I ever name a number, I’ll name it publicly. I mean, if we ever get to the point where we’re contemplating doing it, I would make a public announcement.
GHARIB: But would you ever be interested, are you in favor of buying back shares?
BUFFETT: I think if your stock is undervalued, significantly undervalued, that a management should look at that as an alternative to every other activity. That used to be the way people bought back stocks, but in recent years, companies have bought back stocks at high prices. They’ve done it because they like supporting the stock. They don't ever say it.
GHARIB: In your case, with Berkshire. I mean, it's down a lot. It was up to 147-thousand last year. Would you ever be opposed to buying back stock?
BUFFETT: I’m not opposed to buying back stock.
GHARIB: OK, I'm going to move on. Everyone wants to know your plans. What you’re going to do with all of Berkshire Hathaway’s cash, some 30 billion dollars? Is this now the right time to do a big acquisition?
BUFFETT: Well, we’ve spent a lot of money in the last four months. We spent five billion on Goldman Sachs, three billion on GE, 6.6 billion on Wrigley, we’ve got three billion committed on Dow. We’ve spent a lot of money. We’ve got money left, but I love spending money. Cash makes me very unhappy. I like to always have enough and never way more than enough, but I always want to have enough. So we would never go below $10 billion of cash at Berkshire. We’re in the insurance business - we got a lot of things. We’re never going to depend on the kindness of strangers. But anything excess in that, I love the idea of buying things and the cheaper they get, the better I like it.
GHARIB: You’ve been talking about doing a big acquisition for a while now. What are you waiting for?
BUFFETT: Well, we’ve spent 20 billion dollars. (Laughs.) That might not be ..
GHARIB: I mean in terms of a company, buying …
BUFFETT: Well, we’ll wait for the right deal. We had a deal to buy Constellation for roughly five billion and then events with the French coming in meant that we didn’t do it. But I was delighted to commit for that five billion dollars for Constellation Energy. And it could happen tomorrow. That one happened on a Tuesday afternoon. I mean, it happened like that. Constellation was in big trouble and we flew back that day, the people at (Berkshire Hathaway subsidiary) MidAmerican, met on Tuesday and made them an offer that night.
GHARIB: It seems that you’re pretty optimistic about the long-term future of the American economy and stock market, but a little pessimistic about the short term. Is that a fair assessment of where your head is right now?
BUFFETT: I am unquestionably optimistic about the long-term. I’m more than a little pessimistic about the short-term, but that doesn’t mean I am pessimistic about the stock market. We bought stocks today. If you tell me the economy is going to be terrible for 12 months, pick a number, and then if I find something that is attractive today, I am going to buy it today. I am not going to wait and hope that it sells cheaper six months from now. Because who knows when stocks will hit a low or a high? Nobody knows that. All you know is whether you’re getting enough for your money or not.
GHARIB: All right, I want to move on to our 30th anniversary and wrap-up some of your reflections and thoughts on that. As you know, it’s the 30th anniversary of Nightly Business Report. As you look back on the past three decades, what would you say is the most important lesson that you’ve learned about investing?
BUFFETT: Well, I’ve learned my lessons before that. I read a book, what is it, almost 60 years ago, roughly, called The Intelligent Investor, and I really learned all I needed to know about investing from that book, and particularly chapters 8 and 20. So I haven’t changed anything since. I see different ..
GHARIB: Graham and Dodd?
BUFFETT: Well, that was Ben Graham’s book The Intelligent Investor. Graham and Dodd goes back even before that, which was important, very important. But, you know, you don’t change your philosophy, assuming you think have a sound one. And I picked up, I didn’t figure it out myself, I learned it from Ben Graham. But I got a framework for investing which I put in place back in 1950, roughly, and that framework is the framework I use now. I see different ways to apply it from time to time, but that is the framework.
GHARIB: Can you describe what it is? I mean, what is your most important investment lesson?
BUFFETT: The most important investment lesson is to look at a stock as a piece of a business, not as some little thing that jiggles up and down, or that people recommend, or people talk about earnings being up next quarter, something like that. But to look at it as a business and evaluate it as a business. If you don’t know enough to evaluate it as a business, you don’t know enough to buy it. And if you do know enough to evaluate it as a business and it's selling cheap, you buy it and you don’t worry about what it does next week, next month, or next year.
GHARIB: So if we asked for your investment advice back in 1979, back when Nightly Business Report first got started, would it be any different than what you would say today?
BUFFETT: Not at all. If you’d ask the same questions, you’d have gotten the same answers.
GHARIB: Thank you so much Mr. Buffett. Thank you so much, always a pleasure talking to you.
BUFFETT: Thank you, been a real pleasure.
Also read:
Warren Buffett to PBS: Credit Crunch "Getting a Little Better" But Business Is Getting Worse (January 22)
Warren Buffett Buys Over Four Million More Burlington Northern Shares As Price Plunges (January 20)
Warren Buffett On Barack Obama: Download the Complete Transcript (January 20)
Warren Buffett's Dateline Interview with NBC's Tom Brokaw: The Complete Transcript (Part 2) - January 19
Warren Buffett's Dateline Interview with NBC's Tom Brokaw: The Complete Transcript (Part 1) - January 19
Warren Buffett: Barack Obama Will Help the Economy, But Don't Expect Short-Term Miracles (January 18)
Thursday, 22 Jan 2009
Warren Buffett "Not Opposed" to Berkshire Hathaway Stock Buyback: The Complete PBS Interview Transcript
Posted By: Alex Crippen
Topics:Stock Buybacks Investment Strategy Stock Market Bernard Madoff Barack Obama Inflation Economy (U.S.) Mergers & Acquisitions Warren Buffett
Companies:Dow Chemical Co Wm Wrigley Jr Co Constellation Energy Group Inc Goldman Sachs Group Inc General Electric Berkshire Hathaway Inc.
Warren Buffett, in a taped interview with Susie Gharib of National Business Report on PBS
Warren Buffett sat down recently for a taped interview with Susie Gharib of Nightly Business Report to mark the PBS program's 30th anniverary tonight.
In the conversation, Buffett says the credit crunch is easing but business conditions are getting worse. He also hints Berkshire Hathaway might buy back some of its stock since it has fallen so sharply from its highs.
WARREN BUFFETT TO PBS: CREDIT CRUNCH "GETTING A LITTLE BETTER" BUT BUSINESS IS GETTING WORSE
Buffett and Gharib cover a number of other subjects, including how much advice he's giving President Obama, the government's attempts to stimulate the economy, and the Bernard Madoff scandal.
Portions of their conversation will be shown on NBR tonight (Thursday) and tomorrow (Friday.)
Video of the complete 24-minute conversation has been posted on the program's website.
This is a transcript of that entire interview, as provided to us by NBR. CNBC.com has added links and done some light editing. It is also available as a PDF download.
SUSIE GHARIB, ANCHOR, NIGHTLY BUSINESS REPORT: Are we overly optimistic about what President Obama can do?
WARREN BUFFETT, CHAIRMAN, BERKSHIRE HATHAWAY: Well, I think if you think that he can turn things around in a month or three months or six months and there’s going to be some magical transformation since he took office on the 20th, that can’t happen and wouldn’t happen. So you don’t want to get into Superman-type expectations. On the other hand, I don’t think there’s anybody better than you could have had, have in the presidency than Barack Obama at this time. He understands economics. He’s a very smart guy. He’s a cool rational-type thinker. He will work with the right kind of people. So you’ve got the right person in the operating room, but it doesn’t mean the patient is going to leave the hospital tomorrow.
GHARIB: Mr. Buffett, I know that you’re close to President Obama. What are you advising him? BUFFETT: Well, I’m not advising him really, but if I were I wouldn’t be able to talk about it. I am available any time. But he’s got all kinds of talent right back there with him in Washington. Plus he’s a talent himself so if I never contributed anything for him, fine.
GHARIB: But I know that during the election that you were one of his economic advisors, what were you telling him?
BUFFETT: I was telling him business was going to be awful during the election, period, and that we were coming up in November to a terrible economic scene which would be even worse probably when he got inaugurated. So far I’ve been either lucky or right on that. But he’s got the right ideas. He believes in the same things I believe in. America’s best days are ahead and that we’ve got a great economic machine, it's sputtering now. And he believes there could be a more equitable job done in distributing the rewards of this great machine. But he doesn’t need my advice on anything.
GHARIB: How often do you talk to him?
BUFFETT: Not often, not often, no, no, and it will be less often now that he’s in the office. He’s got a lot of talent around him.
GHARIB: What’s the most important thing you think he needs to fix?
BUFFETT: Well the most important thing to fix right now is the economy. We have a business slowdown, particularly after October 1st, it was sort of on a glide path downward up til roughly October 1st, and then it went into a real nosedive. In fact, in September I said we were in an economic Pearl Harbor and I’ve never used that phrase before. So he really has a tough economic situation and that’s his number one job. Now his number one job always is to keep America safe. That goes without saying.
GHARIB: But when you look at the economy, what do you think is the most important thing he needs to fix in the economy?
BUFFETT: Well, we’ve had to get the credit system partially fixed in order for the economy to have a chance of starting to turn around. But there’s no magic bullet on this. They’re going to throw everything from the government they can in. As I said, the Treasury is going all in, the Fed, and they have to, and that isn’t necessarily going to produce anything dramatic in the short-term at all. Over time, the American economy is going to work fine.
GHARIB: There is considerable debate, as you know, about whether President Obama is taking the right steps so we don’t get in this kind of economic mess again. Where do you stand on that debate?
BUFFETT: Well, I don’t think the worry right now should be about the next one. The worry should be about the present one. Let’s get this fire out and then we’ll figure out fire prevention for the future. But really, the important thing to do now is to figure out how we get the American economy restarted and that’s not going to be easy and it's not going to be soon, but it's going to get done.
GHARIB: But there is debate about whether there should be fiscal stimulus, whether tax cuts work or not. There is all of this academic debate among economists. What do you think? Is that the right way to go with stimulus and tax cuts?
BUFFETT: The answer is nobody knows. The economists don’t know. All you know is you throw everything at it and whether it’s more effective if you’re fighting a fire to be concentrating the water flow on this part or that part. You’re going to use every weapon you have in fighting it. And people, they do not know exactly what the effects are. Economists like to talk about it, but in the end they’ve been very, very wrong and most of them in recent years on this. We don’t know the perfect answers on it. What we do know is to stand by and do nothing is a terrible mistake or to follow Hoover-like policies would be a mistake and we don’t know how effective, in the short-run, we don’t know how effective this will be and how quickly things will right themselves. We do know over time the American machine works wonderfully and it will work wonderfully again.
GHARIB: But are we creating new problems?
BUFFETT: Always.
GHARIB: How worried are you about these multi-trillion dollar deficits?
BUFFETT: You can’t just do one thing in economics. Anytime somebody says 'I'm going to do this', you have to say, 'And then what?' And there is no free lunch, so if you pour money at this problem, you do have aftereffects. You create certain problems. I mean you are giving a medicine dosage to the patient on a scale that we haven’t seen in this country. And there will be aftereffects and they can’t be predicted exactly. But certainly the potential is there for inflationary consequences that would be significant.
GHARIB: We all know that in the long-run everything is going to work out, but as you analyze President Obama’s economic plan, what do you think are the trade-offs? What are the consequences?
BUFFETT: Well, the trade-off, the trade-off basically is that you risk setting in motion forces that will be very hard to stop in terms of inflation down the road and you are creating an imbalance between revenues and expenses in the government that is a lot easier to create than it will be to correct later on. But those are problems worth taking on, but you don’t get a free lunch.
GHARIB: What about the regulatory system? Is it a matter of making new rules or simply doing a better job at enforcing the rules we already have?
BUFFETT: Well, there are probably some new rules needed, but the regulatory system, I don’t think, could have stopped this. Once you get the bubble going, once the American public, the U.S. Congress, all the commentators, the media, everybody else, started thinking house prices could go nothing but up, you were creating a bubble that would have huge consequences because the asset class was so big. I mean, you had 22 trillion dollars, probably, worth of homes. It was the biggest asset of most American families and you let them borrow 100% of, in many cases, of the price of those and you let them refi up to where they kept taking out more and more and treating it as an ATM machine. The bubble was going to happen.
GHARIB: But everybody is talking about, OK, we need more rules, we have to enforce them, we need to go after every institution, every financial market. Do you think that new rules will do the trick or do we have enough rules, we just have to police better?
BUFFETT: Well, you can have a rule, for example, to prevent another real estate bubble. You just require that anybody bought a house to put 20% down and make sure that the payments were not more than a third of their income. Now we would not have a big bust ever in real estate again, but we also would have people screaming that you’re denying home ownership to all these people, that you got a home yourself and now you’re saying a guy with a 5% down payment shouldn’t get one. So I think it’s very tough to put rules out. I mean, I can design rules that will prevent it but it will have other consequences. It’s like I say, in economics you can’t just do one thing. And where the balance is struck on that, will be a political question. My guess is that it won’t be struck particularly well, but that’s just the nature of politics.
GHARIB: You’ve said that we’re in an economic Pearl Harbor, so how bad are things really?
BUFFETT: They’re bad, they’re bad. The credit situation is getting a little better now. Things have loosened up from a month ago in the corporate debt market. But the rate of business descent is at a pretty alarming pace. I mean, there is no question things have really slowed down. Peoples’ buying habits have changed. Fear has taken over and fear is a tough thing to fight because you can’t go on television and say don’t be afraid, that doesn’t work. People will get over it. They got greedy and they got over being greedy. But it took a while to get over being greedy and now the pendulum has swung way over to the fear side. They’ll get over that and we just hope that they don’t go too far back to the greed side.
GHARIB: What’s your view on the recession? How much longer is it going to last?
BUFFETT: I don’t know. I don’t know. I don’t know the answer to these things. The only thing is I know that I don’t know. Maybe other people think they know, but I have no idea.
GHARIB: The last time we talked, you said back in the spring, you said the recession is not going to be a short-haul thing. What is your feel for it right now?
BUFFETT: It isn’t going to be short, but I just don’t know, Susie. If I knew that. There’s no way of knowing.
GHARIB: Berkshire Hathaway is in a lot of businesses that are economically sensitive, like furniture, paint, bricks. Do you see any signs of a pick-up?
BUFFETT: No. No. The businesses that are either construction or housing-related, or that are just plain consumer businesses, they’re doing very, very poorly. The American consumer has stepped back, big time, and it’s contagious and there’s a feedback mechanism because once you hear about this then you get fearful and then don’t do things at all. And that will end at a point, but it hasn’t ended at this point. Now fortunately our two biggest businesses are not really tied that way - in insurance and in our utility business we don’t feel that, of course, those are different things. But everything that’s consumer related feels it big time.
GHARIB: My question to you is, do you think that the psyche of the American consumer has changed, becoming more savers than spenders?
BUFFETT: Well, it certainly has at this point and my guess is that continues for quite a while. What it will be five years from now, I have no idea. I mean the American consumer when they’re confident they spend and they’re not confident now, and they’ve cut it back. But who knows whether.. I doubt that that’s a permanent reset of behavior, but I think it’s more than a one-day or one-week or one-month wonder in that case.
GHARIB: Is that a bad thing?
BUFFETT: Well, it just depends who the consumer is. I mean, consumer debt within reason makes sense. It makes sense to take out a mortgage and own a home, particularly if you aren’t buying during a bubble. You are normally going to see house price appreciation if you don’t buy during a time when people are all excited about it. So I don’t have any moral feelings about debt as to how people should.. I think people should only take on what they can handle though and that gets to their income level.
GHARIB: Let me ask it this way, Americans saving more may be good for consumers, but is that bad for business?
BUFFETT: Well, it’s certainly bad for business in the short-term. Now whether it’s better for business over a 10 or 20 year period... If the American public gets itself in better shape financially that presumably is good for business down the road, but while they’re getting themselves in better shape, it isn't much fun for the merchant on Main Street.
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GHARIB: One thing that Americans aren’t buying these days are stocks. Should they be buying? BUFFETT: Well, just as many people buy a stock everyday as sell one so there are people buying stocks everyday and we’re buying stocks as we go along. If they’re buying into a business they understand at a sensible price they should be buying them. That’s true at any time. There are a lot more things selling at sensible prices now than there were two years ago. So clearly it’s a better time to buying stocks than a couple of years ago. Is it better than tomorrow? I have no idea.
GHARIB: This financial crisis has been extraordinary in so many ways. How has it changed your approach to investing?
BUFFETT: Doesn’t change my approach at all. My approach to investing I learned in 1949 or ‘50 from a book by Ben Graham and it’s never changed.
GHARIB: So many people I have talked to this past year say this was unprecedented, the unthinkable happened. And that hasn’t at all impacted your philosophy on this?
BUFFETT: No, and if I were buying a farm, I wouldn’t change my ideas about how to buy a farm or an apartment house or a business, and that’s all a stock is, it’s part of a business. So if I were going to buy stock in a private business here in Omaha, I’d look at it just like I would have looked at it two years ago and I’ll look at it the same way two years from now. I look at how much I am getting for my money, how good the management is, how the competitive position of that business compares to others, how durable it is and just fundamental questions. The stock market is, you can forget about that. Any stock I buy I will be happy owning it if they close the stock market for five years tomorrow. In other words I am buying a business. I’m not buying a stock. I’m buying a little piece of a business, just like I buy a farm. And that doesn’t change. And all the newspaper headlines of the world don’t change that. It doesn’t mean you can’t buy it cheaper tomorrow. It may turn out that way. But the real question is did I get my money’s worth when I bought it?
GHARIB: One of your famous investing principles is, “Be fearful when others are greedy and greedy when others are fearful.” So is this the time to be greedy, right?
BUFFETT: Yeah. My greed quotient has risen as stocks have gone down. There’s no question about that. The cheaper something gets that you’re going to buy, the happier you feel, right? You’re going to buy groceries the rest of your life; you want grocery prices to go up or down? You want them to go down. And if they go down you don’t think, gee, I got those groceries sitting in my cabinet at home and I’ve lost money on those. You think I am buying my groceries cheaper, I am going to keep buying groceries. Now if you’re a seller, net, obviously you like prices higher. But most people listening to this program, certainly I, myself, and Berkshire Hathaway, we’re going to be buying businesses over time. We like the idea of businesses getting cheaper.
GHARIB: So where do you see the opportunities in the stock market right now?
BUFFETT: That one I wouldn’t tell you about.
GHARIB: Let me throw out some sectors and you just tell me quickly how you feel about these sectors.
BUFFETT: Susie, I am not going to recommend anything.
GHARIB: Even in general? For example, a lot of people now are looking at infrastructure companies. Is that a sector that you find attractive?
BUFFETT: I wouldn’t have any comment. What they ought to do is look at businesses that they understand, they‘d be happy owning for years if there was never a quote on the stock. Just like they buy in privately into a business in their hometown, they ought to forget all about what somebody says is going to be hot next year or the year after, whatever. Because what’s going to be hot, you may be paying twice as much for as something that’s not going to be hot. You don’t want to think in terms of what’s going to be good next year, you want to think in terms of what’s a good business to be in and then buy it at an attractive price. And then you can’t lose.
GHARIB: Do you see more opportunities in the U.S. compared to overseas?
BUFFETT: Well, I am more familiar with the U.S. We have such a big market. I see lots of opportunities here and I see lots of opportunities around the world.
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GHARIB: Let me ask you a little bit about investor confidence. Investor confidence was so shattered last year. What do you think it's going to take to restore confidence?
BUFFETT: If people were dependent on the stock market going up to be confident, they’re in the wrong business. They ought to be confident because they look at a business and they think, I got my money’s worth. They ought to be confident if they buy a farm, not on whether they get a quote the next day on the farm, but they ought to look at what the farm produces, how many bushels an acre do they get out of their corn or soybeans and what prices do they bring. So they ought to look to the business as to whether to be confident compared to the price that they paid and they ought to forget about what anybody is saying, including me on television, or what they’re reading in the paper. That’s got nothing to do with whether they made a good decision or not. What’s got to do with whether they made a good decision is what kind of business they bought and what they paid for it.
Bernard Madoff
GHARIB: People are reeling from this whole Bernie Madoff scandal. What would you say to people who have lost trust in the financial system?
BUFFETT: They shouldn’t have lost, you don’t need to lose trust in the American system. If you decide to buy a farm and you pay the right price for it, you don’t need to lose faith in American agriculture, you know, because the prices of farms go down.
GHARIB: But you know what I’m saying. This was on top of everything else. People lost money last year in companies that they thought were rock solid. As I said, the unthinkable happened, and then on top of it, this whole Bernie Madoff scandal. It has undermined people’s sense of well-being about our system. So what do you say to people who have lost trust?
BUFFETT: Well, they may be better off not being in equities. If they’re really depending on somebody else and they don’t know anything about the somebody else, they’ve got a problem. They shouldn’t do that. I mean there are going to be crooks out there and this guy was a crook on a scale that we’ve never seen before. But you ought to know who you’re dealing with. But if you’re going to buy a stock in some business that’s been around for a 100 years and will be around for 100 more years and it’s not a leveraged company and it sells some important product and it’s got a strong competitive position and you buy it at a reasonable multiple of earnings, you don’t have to worry about crooks, you’re going to do fine.
GHARIB: Is there any take away lessons from the Bernie Madoff story?
BUFFETT: Well, he was a special case. I mean here is a guy who had a good reputation for 30 years or something, and the trust of a lot of people around him. So it’s very easy to draw assurances from the fact that if fifty other people that are prominent and intelligent trust the guy, that maybe you should trust him too. But I wouldn’t put my trust in a single individual like that. I would put my trust in a very good business. I would want a business that was so good that if a so-so guy was running it, it would still certainly do well and there are plenty of businesses that are like that.
GHARIB: So, are you saying that investing has gotten so complicated that investors should stick to what they know? Is that the take-away lesson?
BUFFETT: You should always stick to what you know. I say the 'know-nothing investor' and there’s nothing wrong with being a 'know-nothing investor.' I mean, I spend 60 hours a week thinking about investments, and most people have got jobs and other things to do. They can buy index funds. And they’re not going to do better than an index fund if they go around and trust some guy that's promising them very high returns. If you buy a cross section of American business and you don’t buy it during a period when everybody is all enthused about stock, you’re going to do fine over 10 or 20 years. If you buy something with the idea that you’re going to do fine over 10 months, you may or may not. I do not know what stock is going be up 10 months from now, and I never will.
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GHARIB: What about Berkshire Hathaway stock? Were you surprised that it took such a hit last year, given that Berkshire shareholders are such buy and hold investors?
BUFFETT: Well, most of them are. But in the end, our price is figured relative to everything else. So the whole stock market goes down 50 percent, we ought to go down a lot because you can buy other things cheaper. I‘ve had three times in my lifetime, since I took over Berkshire, when Berkshire stock’s gone down 50 percent. In 1974, it went from $90 to $40. Did I feel badly? No, I loved it. I bought more stock. So, I don’t judge how Berkshire is doing by its market price, I judge it by how our businesses are doing.
GHARIB: Is there a price at which you would buy back shares of Berkshire? $85,000? $80,000?
BUFFETT: (Laughs.) I wouldn’t name a number. If I ever name a number, I’ll name it publicly. I mean, if we ever get to the point where we’re contemplating doing it, I would make a public announcement.
GHARIB: But would you ever be interested, are you in favor of buying back shares?
BUFFETT: I think if your stock is undervalued, significantly undervalued, that a management should look at that as an alternative to every other activity. That used to be the way people bought back stocks, but in recent years, companies have bought back stocks at high prices. They’ve done it because they like supporting the stock. They don't ever say it.
GHARIB: In your case, with Berkshire. I mean, it's down a lot. It was up to 147-thousand last year. Would you ever be opposed to buying back stock?
BUFFETT: I’m not opposed to buying back stock.
GHARIB: OK, I'm going to move on. Everyone wants to know your plans. What you’re going to do with all of Berkshire Hathaway’s cash, some 30 billion dollars? Is this now the right time to do a big acquisition?
BUFFETT: Well, we’ve spent a lot of money in the last four months. We spent five billion on Goldman Sachs, three billion on GE, 6.6 billion on Wrigley, we’ve got three billion committed on Dow. We’ve spent a lot of money. We’ve got money left, but I love spending money. Cash makes me very unhappy. I like to always have enough and never way more than enough, but I always want to have enough. So we would never go below $10 billion of cash at Berkshire. We’re in the insurance business - we got a lot of things. We’re never going to depend on the kindness of strangers. But anything excess in that, I love the idea of buying things and the cheaper they get, the better I like it.
GHARIB: You’ve been talking about doing a big acquisition for a while now. What are you waiting for?
BUFFETT: Well, we’ve spent 20 billion dollars. (Laughs.) That might not be ..
GHARIB: I mean in terms of a company, buying …
BUFFETT: Well, we’ll wait for the right deal. We had a deal to buy Constellation for roughly five billion and then events with the French coming in meant that we didn’t do it. But I was delighted to commit for that five billion dollars for Constellation Energy. And it could happen tomorrow. That one happened on a Tuesday afternoon. I mean, it happened like that. Constellation was in big trouble and we flew back that day, the people at (Berkshire Hathaway subsidiary) MidAmerican, met on Tuesday and made them an offer that night.
GHARIB: It seems that you’re pretty optimistic about the long-term future of the American economy and stock market, but a little pessimistic about the short term. Is that a fair assessment of where your head is right now?
BUFFETT: I am unquestionably optimistic about the long-term. I’m more than a little pessimistic about the short-term, but that doesn’t mean I am pessimistic about the stock market. We bought stocks today. If you tell me the economy is going to be terrible for 12 months, pick a number, and then if I find something that is attractive today, I am going to buy it today. I am not going to wait and hope that it sells cheaper six months from now. Because who knows when stocks will hit a low or a high? Nobody knows that. All you know is whether you’re getting enough for your money or not.
GHARIB: All right, I want to move on to our 30th anniversary and wrap-up some of your reflections and thoughts on that. As you know, it’s the 30th anniversary of Nightly Business Report. As you look back on the past three decades, what would you say is the most important lesson that you’ve learned about investing?
BUFFETT: Well, I’ve learned my lessons before that. I read a book, what is it, almost 60 years ago, roughly, called The Intelligent Investor, and I really learned all I needed to know about investing from that book, and particularly chapters 8 and 20. So I haven’t changed anything since. I see different ..
GHARIB: Graham and Dodd?
BUFFETT: Well, that was Ben Graham’s book The Intelligent Investor. Graham and Dodd goes back even before that, which was important, very important. But, you know, you don’t change your philosophy, assuming you think have a sound one. And I picked up, I didn’t figure it out myself, I learned it from Ben Graham. But I got a framework for investing which I put in place back in 1950, roughly, and that framework is the framework I use now. I see different ways to apply it from time to time, but that is the framework.
GHARIB: Can you describe what it is? I mean, what is your most important investment lesson?
BUFFETT: The most important investment lesson is to look at a stock as a piece of a business, not as some little thing that jiggles up and down, or that people recommend, or people talk about earnings being up next quarter, something like that. But to look at it as a business and evaluate it as a business. If you don’t know enough to evaluate it as a business, you don’t know enough to buy it. And if you do know enough to evaluate it as a business and it's selling cheap, you buy it and you don’t worry about what it does next week, next month, or next year.
GHARIB: So if we asked for your investment advice back in 1979, back when Nightly Business Report first got started, would it be any different than what you would say today?
BUFFETT: Not at all. If you’d ask the same questions, you’d have gotten the same answers.
GHARIB: Thank you so much Mr. Buffett. Thank you so much, always a pleasure talking to you.
BUFFETT: Thank you, been a real pleasure.
Also read:
Warren Buffett to PBS: Credit Crunch "Getting a Little Better" But Business Is Getting Worse (January 22)
Warren Buffett Buys Over Four Million More Burlington Northern Shares As Price Plunges (January 20)
Warren Buffett On Barack Obama: Download the Complete Transcript (January 20)
Warren Buffett's Dateline Interview with NBC's Tom Brokaw: The Complete Transcript (Part 2) - January 19
Warren Buffett's Dateline Interview with NBC's Tom Brokaw: The Complete Transcript (Part 1) - January 19
Warren Buffett: Barack Obama Will Help the Economy, But Don't Expect Short-Term Miracles (January 18)
Warren Buffett Metric Signals It's "Time to Buy" Stocks
Wednesday, 4 Feb 2009
Fortune's Loomis: Warren Buffett Metric Signals It's "Time to Buy" Stocks
Posted By: Alex Crippen
Topics:Investment Strategy Economy (U.S.) Stock Market Warren Buffett
Companies:Berkshire Hathaway Inc.
Fortune Magazine's Carol Loomis, a journalist with especially strong ties to Warren Buffett, writes that a metric favored by the Omaha billionaire is now signaling it's time to buy stocks.
In today's Fortune Investor Daily on the magazine's web site, Loomis and Doris Burke point to an 85-year chart showing the the total market value of U.S. stocks as a percent of Gross National Product, a measure of economic output.
The idea is "there should be a rational relationship" between the two measures.
In a 2001 Fortune Magazine essay written by Buffett with Loomis, he says if the ratio "falls to the 70% to 80% area, buying stocks is likely to work very well for you." When it is substantially higher, "you're playing with fire." (The essay goes into extensive detail on his reasoning.)
As of late January, according to Fortune's chart, the metric had dropped to 75 percent, after hitting a peak of 190 percent in March of 2000.
She notes that last October, Buffett wrote in the New York Times that he was personally buying U.S. stocks and would continue to do so if prices kept falling, which they have.
Anything Loomis writes about Buffett gets extra attention, due to her closeness to him over the years. She helps write his annual letters to Berkshire Hathaway shareholders and has worked with Buffett on several Fortune articles, including his decision to give away the bulk of his personal wealth in the future.
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Current Berkshire stock prices:
Class A: [US;BRK.A 77000.0 -1600.00 (-2.04%) ]
Class B: [US;BRK.B 2387.0 -129.50 (-5.15%) ]
For more Buffett Watch updates follow alexcrippen on Twitter.
http://www.cnbc.com/id/29016198/
Fortune's Loomis: Warren Buffett Metric Signals It's "Time to Buy" Stocks
Posted By: Alex Crippen
Topics:Investment Strategy Economy (U.S.) Stock Market Warren Buffett
Companies:Berkshire Hathaway Inc.
Fortune Magazine's Carol Loomis, a journalist with especially strong ties to Warren Buffett, writes that a metric favored by the Omaha billionaire is now signaling it's time to buy stocks.
In today's Fortune Investor Daily on the magazine's web site, Loomis and Doris Burke point to an 85-year chart showing the the total market value of U.S. stocks as a percent of Gross National Product, a measure of economic output.
The idea is "there should be a rational relationship" between the two measures.
In a 2001 Fortune Magazine essay written by Buffett with Loomis, he says if the ratio "falls to the 70% to 80% area, buying stocks is likely to work very well for you." When it is substantially higher, "you're playing with fire." (The essay goes into extensive detail on his reasoning.)
As of late January, according to Fortune's chart, the metric had dropped to 75 percent, after hitting a peak of 190 percent in March of 2000.
She notes that last October, Buffett wrote in the New York Times that he was personally buying U.S. stocks and would continue to do so if prices kept falling, which they have.
Anything Loomis writes about Buffett gets extra attention, due to her closeness to him over the years. She helps write his annual letters to Berkshire Hathaway shareholders and has worked with Buffett on several Fortune articles, including his decision to give away the bulk of his personal wealth in the future.
---
Current Berkshire stock prices:
Class A: [US;BRK.A 77000.0 -1600.00 (-2.04%) ]
Class B: [US;BRK.B 2387.0 -129.50 (-5.15%) ]
For more Buffett Watch updates follow alexcrippen on Twitter.
http://www.cnbc.com/id/29016198/
Buffett Watch: Holdings Getting Hammered
Buffett Watch: Holdings Getting Hammered
02/20/09 - 12:39 PM EST
More on BRK.A
Opinion: Obama Subsidizes the Wrong People
Financial Winners & Losers: BofA
Top Ten Most Searched Stocks on TheStreet.com
Cramer: Nationalization Would Crush America
The 25 Strongest Auto Insurers
Oscar Sponsors Set Example for Small Firms
Opinion: 'Absurd' Understates Obama Plan
Buffett Watch: Berkshire Slide Adds to Insults
Top 10 Most-Searched Stocks: Bank of America
Top Takes From RealMoney
Market Activity
American Express Company AXP
Berkshire Hathaway Incorporated Class A BRK.A
Berkshire Hathaway Class B BRK.B
The Berkshire Hathaway (BRK.A Quote - Cramer on BRK.A - Stock Picks) investment debacle continues apace.
Berkshire lost another $500 million in American Express (AXP Quote - Cramer on AXP - Stock Picks) and Wells Fargo (WFC Quote - Cramer on WFC - Stock Picks) in the first 15 minutes of trading today, and this came on the heels of losing nearly $350 million in the two names around the lunch hour yesterday.
Moreover, the mark on Berkshire's $30 billion-plus derivative short put trade on the S&P 500 probably now exceeds $10 billion.
A billion here a billion there, and soon it's real money!
Finally, it is interesting to note that normally non-volatile stocks, such as Kraft (KFT Quote - Cramer on KFT - Stock Picks) and Constellation Energy Group (CEG Quote - Cramer on CEG - Stock Picks) are under pressure today.
The reason might be that they are large Berkshire Hathaway holdings and short sellers could be smelling blood.
Doug Kass writes daily for RealMoney Silver, a premium bundle service from TheStreet.com.
http://www.thestreet.com/story/10465204/1/buffett-watch-holdings-getting-hammered.html
02/20/09 - 12:39 PM EST
More on BRK.A
Opinion: Obama Subsidizes the Wrong People
Financial Winners & Losers: BofA
Top Ten Most Searched Stocks on TheStreet.com
Cramer: Nationalization Would Crush America
The 25 Strongest Auto Insurers
Oscar Sponsors Set Example for Small Firms
Opinion: 'Absurd' Understates Obama Plan
Buffett Watch: Berkshire Slide Adds to Insults
Top 10 Most-Searched Stocks: Bank of America
Top Takes From RealMoney
Market Activity
American Express Company AXP
Berkshire Hathaway Incorporated Class A BRK.A
Berkshire Hathaway Class B BRK.B
The Berkshire Hathaway (BRK.A Quote - Cramer on BRK.A - Stock Picks) investment debacle continues apace.
Berkshire lost another $500 million in American Express (AXP Quote - Cramer on AXP - Stock Picks) and Wells Fargo (WFC Quote - Cramer on WFC - Stock Picks) in the first 15 minutes of trading today, and this came on the heels of losing nearly $350 million in the two names around the lunch hour yesterday.
Moreover, the mark on Berkshire's $30 billion-plus derivative short put trade on the S&P 500 probably now exceeds $10 billion.
A billion here a billion there, and soon it's real money!
Finally, it is interesting to note that normally non-volatile stocks, such as Kraft (KFT Quote - Cramer on KFT - Stock Picks) and Constellation Energy Group (CEG Quote - Cramer on CEG - Stock Picks) are under pressure today.
The reason might be that they are large Berkshire Hathaway holdings and short sellers could be smelling blood.
Doug Kass writes daily for RealMoney Silver, a premium bundle service from TheStreet.com.
http://www.thestreet.com/story/10465204/1/buffett-watch-holdings-getting-hammered.html
Doug Kass Sees The "End" of Warren Buffett
Tuesday, 27 Jan 2009
Doug Kass Sees The "End" of Warren Buffett
Posted By: Alex Crippen
Topics:Banking Stock Market Investment Strategy Warren Buffett
Companies:US Bancorp Conocophillips Burlington Northern Santa Fe Corp Coca Cola Co American Express Co Wells Fargo and Co Berkshire Hathaway Inc.
Topics:Banking Stock Market Investment Strategy Warren Buffett
Companies:US Bancorp Conocophillips Burlington Northern Santa Fe Corp Coca Cola Co American Express Co Wells Fargo and Co Berkshire Hathaway Inc.
Just days after renewing his public criticism of Warren Buffett's current investment strategy and situation, the well-known short seller Doug Kass is out with a very bearish outlook for Berkshire Hathaway shares.
And this time he's not just making a short-term prediction as he did last year when he bet against Berkshire's stock for several months and then covered that bet at a profit.
Today on TheStreet.com, Kass asks, "Is This the End of Warren Buffett?"
His post includes words like "tentative" and "seems," so it is not a definitive obituary. But Kass does answer his headline's question with a strong 'yes.'
Kass calculates that the market value for six of Berkshire's major stock holdings has dropped a total of $16 billion dollars since the end of September. This, he argues, "is more than just a bump in the road."
Based on reported Berkshire holdings as of September 30, and the stock moves since then, Kass estimates:
Wells Fargo: $6.3 billion lost on 290 million shares
American Express: $2.9 billion lost on 151 million shares
Coca-Cola: $2.1 billion lost on 200 million shares
Burlington Northern Santa Fe: $1.8 billion lost on 63 million shares
ConocoPhillips: $1.5 billion lost on 60 million shares
U.S. Bancorp: $1.5 billion on 73 million shares
Kass cites his own previously expressed concerns about Buffett's "investment style drift into derivatives," Buffett's "refusal to sell," and "his apparent lack of recognition that investment moats no longer exist in some of his largest investments," especially banking.
In his conclusion, Kass makes it clear he's not predicting a Berkshire downturn to be followed by a rebound once the economy and stock market improve.
"I now feel that Berkshire's valuation will steadily suffer, despite the long-term allegiance of its investors who are geared toward evaluating the company over decades, not years."
While Kass acknowledges that he has "worshipped" at Buffett's "investing altar" in the past, now, "From my perch, Buffett's salad days seem to be over; the only question that remains is the timing and to what degree investors will abandon the Oracle of Omaha."
Kass's bottom line: "All good things, it seems, in markets and life, must come to an end."
Based on the overwhelming email response this blog received in December when we asked, "Are you losing faith in Warren Buffett?" .. many of you don't agree.
For more Buffett Watch updates follow alexcrippen on Twitter.
Also read: Kass: Is This the End of Warren Buffett?
Warren Buffett Cancels Annual Event Hosted By His Biographer
Tuesday, 3 Feb 2009
Warren Buffett Cancels Annual Event Hosted By His Biographer
Posted By: Alex Crippen
Topics:Publishing Warren Buffett
Companies:Berkshire Hathaway Inc.
Marion Ettlinger
Alice Schroeder, author of Bantam Dell's The Snowball: Warren Buffett and the Business of Life
Warren Buffett's authorized biographer will not be hosting a "sage advice" dinner featuring the Omaha billionaire at this year's Berkshire Hathaway annual meeting in May, bringing a decade-long tradition to an end.
Since 1998, Snowball author Alice Schroeder has invited up to several hundred guests to hear Buffett answer questions questions in an informal, off-the-record, event.
The New York Times reports that Buffett has canceled this year's dinner, "apparently because of his displeasure with some aspects" of Schroeder's book.
The newspaper cites "two people with knowledge of the situation who declined to be identified by name."
According to the Times, "there has been a cooling of relations" but not a "total falling out" between Buffett and Schroeder. "Those who are aware of Mr. Buffett's reaction to the book said that seeing his complicated personal life laid out in black and white left him with mixed feelings, particularly over the portrayal of his late wife, Susan."
Over five years of researching and writing, Schroeder spent thousands of hours with Buffett and had access to his personal records. She first met him in the late '90s when she was a Wall Street analyst.
She tells the Times, "We're still in touch with each other. But now that the book is finished, it is not as frequent as before. You can conjecture what you want from that. I will not stop the conjecture."
The Omaha World-Herald quotes Schroeder as saying, "All good things come to an end. It wasn't going to go on forever. It was great."
Buffett's office tells the Times, "Mr. Buffett likes Alice, likes her book and has received a number of glowing letters from friends about it." Even so, "at some point, like the charity golf outing he once hosted, an event runs its course."
Has Warren Buffett Been "Buying American"?
Tuesday, 17 Feb 2009
Has Warren Buffett Been "Buying American" for Berkshire Hathaway? We Find Out Today
Posted By: Alex Crippen
Topics:Investment Strategy Stock Market Warren Buffett
Companies:Conocophillips Tiffany and Co Harley Davidson Inc Goldman Sachs Group Inc General Electric Berkshire Hathaway Inc.
Exactly four months ago today, on October 17, Warren Buffett wrote an op-ed piece for the New York Times with one of his rare, specific market calls for investors: "Buy American. I Am."
He explained how falling stock prices had prompted him to pick up U.S. stocks at bargain prices .. for his personal account.
At that time he said, "If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities."
If anything, prices became even more attractive after Buffett's op-ed. The S&P closed at 940.55 on October 17. Just over one month later, on November 20, it had fallen another 20 percent to its current bear-market closing low of 752.44.
http://www.cnbc.com/id/29235437
Also read:
Warren Buffett's Berkshire Hathaway Cuts Johnson & Johnson Stake By Half
Why Warren Buffett Isn't a Hypocrite
Jim Cramer is laying out his case against Warren Buffett's recent stock moves.
Warren Buffett's Berkshire Hathaway Cuts Johnson & Johnson Stake By Half
Tuesday, 17 Feb 2009
Warren Buffett's Berkshire Hathaway Cuts Johnson & Johnson Stake By Half
Posted By: Alex Crippen
Topics:Warren Buffett
Companies:Wesco Financial Corp Wellpoint Inc Washington Post Company Wal-Mart Stores Inc United Parcel Service Inc Union Pacific Corp USG Corporation Torchmark Corp Suntrust Preferred Capital I Sanofi-Aventis SA Norfolk Southern Corp Nike Inc Moody's Corp M & T Bank Corp Lowe's Companies Inc Kraft Foods Inc. Iron Mountain Incorporated Home Depot Inc General Electric Gannett Inc Costco Wholesale Corporation Comcast Corp Coca Cola Co Bank of America Corp American Express Co Wells Fargo and Co Unitedhealth Group Inc Burlington Northern Santa Fe Corp NRG Energy, Inc. Ingersoll-Rand Co Ltd Eaton Corp US Bancorp Procter & Gamble Co CARMAX INC Conocophillips Nalco Holding Company Johnson and Johnson Berkshire Hathaway Inc.
Warren Buffett's Berkshire Hathaway has just released its fourth quarter stock portfolio snapshot.
Instead of asking what Buffett has been buying, we should have been wondering what Buffett has been selling.
Most notably, Berkshire slashed its holdings in Johnson and Johnson to just 28.6 million shares as of December 31. That's a drop of almost 54 percent. It had reported holding 61.8 million shares as of the end of the third quarter on September 30.
That brings Berkshire's stake in J&J down to just under 4 percent from almost 8 percent.
RELATED LINKS
Cramer: Buffett 'Selling America'
Cramer: Don't Follow Buffett this Time
Market Tips: Defensive Plays are Passé, Expensive
Cramer: Buffett 'Selling America'
Cramer: Don't Follow Buffett this Time
Market Tips: Defensive Plays are Passé, Expensive
Johnson and Johnson's shares price fell almost 18 percent during the fourth quarter. We don't know whether Buffett avoided any or all of that drop since the filing doesn't say when the shares were sold. We do know that the stock is down another 6.4 percent year-to-date, a drop that Berkshire has avoided on the 33.2 million shares sold. Based on their December 31 close, those 33 million shares were worth about $2 billion.
Berkshire also made a sizable cut in its holdings of another healthcare company, Procter & Gamble [PG 50.25 -0.88 (-1.72%) ]. That stake fell 9 percent to 96.3 million shares from 105.8 million.
Berkshire's smaller cuts in Q4:
ConocoPhillips [COP 39.44 -2.35 (-5.62%) ] fell 4.8 percent to 79.9 million shares
CarMax [KMX 8.73 0.10 (+1.16%) ] dropped 4.4 percent to 17.6 million shares
US Bancorp [USB 10.58 -0.30 (-2.76%) ] reduced by 7.4 percent to 67.6 million shares
Buffett wasn't just selling in the fourth quarter. Berkshire increased these holdings:
NRG Energy [IR 15.83 -0.22 (-1.37%) ] soared 44 percent to 7.2 million shares
NRG Energy [IR 15.83 -0.22 (-1.37%) ] soared 44 percent to 7.2 million shares
Ingersoll-Rand [IR 15.83 -0.22 (-1.37%) ] increased by 38.1 percent to 7.8 million shares
Eaton [ETN 40.28 -0.44 (-1.08%) ] jumped by 10 percent to 3.2 million shares
And there's one new stake: about 8.7 million shares of Nalco Holding. [NLC 11.31 -0.29 (-2.5%) ]
On its web site, the company describes itself as "the leading integrated water treatment and process improvement company in the world."
At today's closing price of $11.06, the Nalco stake is worth just $96 million. (The stock is getting a 6 percent boost in after-hours trading.)
And Buffett is holding tight on his big financial holdings, including stakes in American Express [AXP 12.97 0.10 (+0.78%) ] and Wells Fargo [WFC 10.91 -1.10 (-9.16%) ].
Overall, the dollar value of Berkshire's disclosed stock portfolio fell 25.8 percent to just under $52 billion as of December 31, down from almost $70 billion on September 30.
Our Berkshire Hathaway Portfolio Tracker shows the portfolio holdings as of December 31 are worth $41.4 billion, using today's closing prices
Overall, the dollar value of Berkshire's disclosed stock portfolio fell 25.8 percent to just under $52 billion as of December 31, down from almost $70 billion on September 30.
Our Berkshire Hathaway Portfolio Tracker shows the portfolio holdings as of December 31 are worth $41.4 billion, using today's closing prices
He said then he was buying domestic equities for his personal account. Apparently he felt Berkshire's money could be put to better use elsewhere. One alternative we know about are Berkshire high-interest rate loans to well-known companies facing tough times, such as Tiffany, Swiss Re, Harley-Davidson, Goldman Sachs, and General Electric.
Bloomberg quotes Buffett-style investor Mohnish Pabrai as saying before the portfolio filing, "Buffett has shown a preference over the past couple years toward buying whole companies, the debt markets or other private deals."
That's certainly evident in today's filing.
Here are the details from tonight's Berkshire Hathaway portfolio snapshot as of December 31, compared to the filing for September 30.
That's certainly evident in today's filing.
Here are the details from tonight's Berkshire Hathaway portfolio snapshot as of December 31, compared to the filing for September 30.
ADDED STAKES
Constellation Energy added at 19,894,322 shares. Berkshire obtained these shares in mid-December as part of its break-up fee after Constellation agreed to be acquired by Électricitié de France and canceled its tentative deal with Berkshire's MidAmerican Energy Holdings. Subsequent filings show that Berkshire sold over five million shares in January and early February, bringing its holdings down to 14,831,107 shares as of February 6.
[CEG 21.60 -1.22 (-5.35%) ]
Nalco Holding added at 8,739,100 shares.
[NLC 11.31 -0.29 (-2.5%) ]
INCREASED STAKES
Burlington Northern increased 9.9% to 70,089,829 shares from 63,785,418 shares.
(Berkshire reported holding 76,777,029 shares as of January 30.)
[BNI 61.84 0.07 (+0.11%) ]
Eaton Corp. stake increased 10.0% to 3,200,000 shares from 2,908,700 shares. Eaton was a new holding as of the end of the third quarter.
[ETN 40.28 -0.44 (-1.08%) ]
Ingersoll-Rand stake increased 38.1% to 7,782,600 shares from 5,636,600 shares.
[IR 15.83 -0.22 (-1.37%) ]
NRG Energy stake increased 44.0% to 7,200,000 shares from 5,000,000 shares. The stake was also up in the third quarter, increasing by 54.4%.
[NRG 19.80 -0.12 (-0.6%) ]
DECREASED STAKES
Carmax stake decreased 4.4% to 17,636,500 shares from 18,444,100 shares from 21,300,000 shares.
[KMX 8.73 0.10 (+1.16%) ]
ConocoPhillips stake decreased 4.8% to 79,896,273 shares from 59,688,000 shares.
[COP 39.44 -2.35 (-5.62%) ]
Johnson & Johnson stake decreased 53.7% to 28,611,591 shares from 61,754,448 shares.
[JNJ 54.65 -1.28 (-2.29%) ]
Procter & Gamble stake decreased 9.0% to 9,530,990 shares from 105,847,000 shares.
[PG 50.25 -0.88 (-1.72%) ]
US Bancorp stake decreased 7.4% to 67,551,426 shares from 72,937,126 shares. [USB 10.58 -0.30 (-2.76%) ]
UnitedHealth Group stake decreased 1.3% to 6,300,000 shares from 6,379,900 shares. [UNH 27.98 -0.67 (-2.34%) ]
Wells Fargo stake decreased 0.1% to 290,244,868 shares from 290,407,668 shares. [WFC 10.91 -1.10 (-9.16%) ]
UNCHANGED STAKES
American Express unchanged at 151,610,700 shares.
[AXP 12.97 0.10 (+0.78%) ]
Bank of America unchanged at 5,000,000 shares. The stake had dropped 45.1% in the third quarter.
[BAC 3.79 -0.14 (-3.56%) ]
Coca-Cola unchanged at 200,000,000 shares.
[KO 42.84 -0.46 (-1.06%) ]
Comcast unchanged at 12,000,000 shares.
[CMCSA 12.84 -0.15 (-1.15%) ]
Comdisco unchanged at 1,538,377 shares.
[CDCO 7.60 0.10 (+1.33%) ]
Costco Wholesale unchanged at 5,254,000 shares.
[COST 42.76 0.14 (+0.33%) ]
Gannett unchanged at 3,447,600 shares.
[GCI 3.70 -0.16 (-4.15%) ]
General Electric unchanged at 7,777,900 shares.
[GE 9.38 -0.68 (-6.76%) ]
GlaxoSmithKline unchanged at 1,510,500 shares.
[GSK 32.55 -0.77 (-2.31%) ]
Home Depot unchanged at 3,700,000 shares.
[HD 19.46 -0.70 (-3.47%) ]
Iron Mountain unchanged at 3,372,200 shares.
[IRM 19.89 0.07 (+0.35%) ]
Kraft Foods unchanged at 138,272,500 shares.
[KFT 23.51 -0.82 (-3.37%) ]
Lowes Companies unchanged at 6,500,000 shares.
[LOW 15.86 -1.12 (-6.6%) ]
M&T Bank unchanged at 6,715,060 shares.
[MTB 35.10 1.80 (+5.41%) ]
Moody's unchanged at 48,000,000 shares.
[MCO 19.16 -2.91 (-13.19%) ]
Nike unchanged at 7,641,000 shares.
[NKE 42.93 0.12 (+0.28%) ]
Norfolk Southern unchanged at 1,933,000 shares.
[NSC 33.97 -0.07 (-0.21%) ]
Sanofi Aventis unchanged at 3,903,933 shares.
[SNY 28.25 -0.58 (-2.01%) ]
SunTrust Banks unchanged at 3,204,600 shares.
[STI 7.35 0.65 (+9.7%) ]
Torchmark unchanged at 2,823,879 shares.
[TMK 22.07 -2.86 (-11.47%) ]
USG unchanged at 17,072,192 shares.
[USG 5.63 -0.25 (-4.25%) ]
Union Pacific unchanged at 8,906,000 shares.
[UNP 40.03 0.80 (+2.04%) ]
United Parcel Service unchanged at 1,429,200 shares.
[UPS 42.80 -0.13 (-0.3%) ]
Wabco Holdings unchanged at 2,700,000 shares.
[WBC 10.66 -0.21 (-1.93%) ]
Wal-Mart Stores unchanged at 19,944,300 shares.
[WMT 50.02 -0.43 (-0.85%) ]
Washington Post unchanged at 1,727,765 shares.
[WPO 390.30 -1.20 (-0.31%) ]
Wellpoint stake unchanged at 4,777,300 shares.
[WLP 41.45 0.19 (+0.46%) ]
Wesco Financial unchanged at 5,703,087 shares.
[WSC 265.00 -5.00 (-1.85%) ]
Current Berkshire stock prices:
Class A: [US;BRK.A 77000.0 -1600.00 (-2.04%) ]
Class B: [US;BRK.B 2387.0 -129.50 (-5.15%) ]
For more Buffett Watch updates follow alexcrippen on Twitter.
Why Warren Buffett Isn't a Hypocrite
Thursday, 19 Feb 2009
Why Warren Buffett Isn't a Hypocrite
Posted By: Alex Crippen
Topics:Investment Strategy Warren Buffett
Companies:Goldman Sachs Group Inc General Electric Procter & Gamble Co Johnson and Johnson Berkshire Hathaway Inc.
Warren Buffett is getting some heat from CNBC's Jim Cramer for Berkshire Hathaway's sales of big chunks of stock last fall, including billions of dollars worth of Johnson & Johnson.
On a CNBC Special Report Tuesday, Cramer advised investors not to follow Buffett's lead this time around.
Then Cramer wrote on his site, TheStreet.com, that Buffett was "selling America" even as he was writing an op-ed piece titled Buy American. I Am. for the New York Times.
Last night, on his Mad Money program, Cramer revisited Buffett as he listed what he sees as the 10 biggest myths and misperceptions in the market today.
Cramer is not only accusing Buffett of making bad decisions, he's implying that Buffett has been hypocritically ignoring his own public call in the Times to buy U.S. stocks, misleading all those investors who 'copy' Berkshire's buys and sells.
But there is another way of looking at it.
Buffett was clear in his Times piece that he was buying U.S. stocks for his personal account. For himself, and for many investors, he saw cheap equities as the best way to put cash to work.
But Berkshire has other opportunities to make money that simply aren't available to everyone else. Most notably it can become a lender of last resort to solid companies going through a difficult time, and it can collect a very hefty interest rate for those loans.
Last fall, Buffett wasn't "buying American" for Berkshire, but he was "loaning American." A total of eight billion dollars went to General Electric and Goldman Sachs. Those loans pay 10 percent a year, guaranteed. The major risk is a collapse of these enormous icons of American business, a risk small enough for Buffett to accept.
And those billions of dollars of loans may very well have come from stock sales. After all, Buffett always wants to have a base level of cash on hand and resists borrowing money to finance investments.
Even if Buffett thought Johnson & Johnson would ultimately generate a solid return, it seems unlikely to expect that return would be 10 percent a year.
Buffett is not just looking for good investments for Berkshire, he's looking for the best investments he can find, that carry as little risk as possible.
Loaning billions to GE and Goldman at 10 percent over a few years could easily be a better use of that money than letting it ride in the stock market. (It does imply that he saw the stocks he sold as less likely to move higher than other equities in the portfolio.)
Buffett does not encourage anyone to replicate his Berkshire investments. He wasn't necessarily trying to send a "sell" signal on J&J and P&G, or U.S. stocks in general.
He was probably raising money to take advantage of GE and Goldman's need for quick cash, an opportunity unique to Berkshire Hathaway.
Current stock prices:
Berkshire Class A: [US;BRK.A 77000.0 -1600.00 (-2.04%) ]
Berkshire Class B: [US;BRK.B 2387.0 -129.50 (-5.15%) ]
Johnson & Johnson: [JNJ 54.65 -1.28 (-2.29%) ]
Procter & Gamble:[PG 50.25 -0.88 (-1.72%) ]
General Electric:[GE 9.38 -0.68 (-6.76%) ]
Goldman Sachs:[GS 84.59 -1.42 (-1.65%) ]
For more Buffett Watch updates follow alexcrippen on Twitter.
Questions? Comments? Email me at buffettwatch@cnbc.com
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