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I just got back from the meeting in Omaha, and I'm bushed. I've followed Buffett since 1970, and have been going to the annual meetings since 1990. Before looking to find Buffett on Charlie Rose tonight, I thought I'd share my unvarnished impressions.

1. I've never seen Buffett more bearish on the overall market. From 2000-02, Buffett had a few caveats about trying to time the market, but I read his current posture as outright bearish. Charlie is bearish too, but that's to be expected. Buffett is now the bigger bear.

2. Buffett said he could not explain the 4.2% yield on the 10-year treasury bond. Buffett said if he could be convinced that yield would hold, he would change his outlook in a major way. He said “we will see where that interest rate is in one year.” Clear implication: Buffett thinks interest rates are poised to make a sharp jump.

3. Buffett said that he had lived through 3 or 4 period of financial excess, and that such periods tend to end badly. He looks for compelling bargains to emerge in the stock market in the near term, and that he wants to be a patient buyer. If nothing happens within two years, Buffett said he would have to think long and hard about a big cash distribution to shareholders. Clear implication: Buffett looks for a financial hiccup, and soon.

4. Buffett spoke about FRE and FNM and the increasing potential for a financial-derivatives inspired financial disaster. He alluded to Paul Volker's prediction about a 75% chance of a near-term financial meltdown.

5. Buffett talked about GM being in an untenable position that will not end well. He went on and on about GM has a health care deal that makes the company uncompetitive, and that he did not know how he would solve the problem if he were Chairman of the GM Board. Clear implication :GM is in for hard times.

6. Buffett was laudatory about Bill Gates, and his addition to the board. Berkshire companies are doing much better than expected, but a $300 million currency loss ate much of that up. I heard more talk about macroeconomics (trade deficits, budget deficits) than at anytime since I was in graduate school. (When anyone starts talking about predicting macro events–or basing investment decision on macroeconomic considerations–I get real, real nervous.

7. Buffett said pharmaceuticals have made good money in the past, but that the business had changed. Buffett and Charlie said they had decided to look elsewhere where the valuation problem was less difficult. Clear implication: Warren and Charlie had looked/were looking hard at big pharma.

8. A $1 billion insurance acquisition was to be announced shortly.

9. Best quip: Warren said that members of the board of directors appointed to the compensation committee resembled Cihuahuas rather than Great Danes or Doberman Pinchers. Buffett then laughed nervously and said: “I hope I didn't offend any of my friends on compensation committees around the country.” Charlie interjected “It's the dogs that should be offended.”

10. Charlie was in vintage form, and more voluble than I've ever seen him. Bearish but upbeat and cheerful.

Mark
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mhirschey-

Thanks for your observations. The one exception that I would take is your characterization of Buffett as the most bearish he has been on the stock market. I thought I heard him say that over a ten year period given current prices, he favored stocks over other asset classes and that he thought stocks were more attractive than at any time over the past five years. Of course, this does not make him bullish on stocks. He seems more bearish on other asset classes, however, including specifically bonds, real estate and gold. He also said that in 1999, stocks were way overvalued and reits were undervalued, a situation that he says has dramatically changed.

Of course, it is possible that he was just tempering Munger's amazing level of bearishness. I think I heard Charlie predict the decline and fall of western civilization as we know it!

markreisman
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mhischey-

Sorry, I left one thing out of my last reply to your summary. I thought I heard Buffett say that the net investment loss for this quarter was $120 million (an artificial number, see last reply.) Therefore, I take issue with your suggestion that operating profits were almost "eaten up" during the quarter. Even if you count the net investment loss, the net operating profit still exceeded that loss by almost $300 million during the quarter which is an impressive number. I hope my notes are correct on this. Please advise if I am mistaken.
Thanks,
markreisman
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markreisman ,

Buffett lost $310 million in the first quarter from betting against the U.S. dollar. At the same time, Buffett said first-quarter pretax operating profit was up $400 million, or a little more from a year earlier.

I take that to mean that much of the good first quarter news on the operating front was eaten up by speculative currency trading losses.

Personally, I find this disquieting. Buffett has made billions making smart microeconomic bets. I don't know who has made similar amounts making macroeconomic bets.

Mark

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wow... i'm starting to feel stupid even about my tiny purchase of OSTK last week! I'll be suspending any purchases of any stock unless that stock specifically crashes.

and...Oh yeah - Buffett will probably find a use for his $50B pretty soon!
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mhirschey

Your criticism of Buffett is valid on the fundamentals. I also would prefer that Buffett stick to the tried and true rather than making macroeconomic bets. Still, his bet against the dollar has so far been profitable (although unrealized) from the time it was made.

I guess I think that investment gains or losses during a quarter are very much an accounting entry, since often these gains or losses are not realized in any real sense. As such, they should be viewed differently from operating results and should not obscure the great vitality that the operating businesses are showing. But if you disagree with me and feel that everything should be lumped together, then at least give Buffett credit for the $190 million in investment gains during the quarter that from an accounting point of view reduce the investment loss to $120 million.

markreisman
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Of course, it is possible that he was just tempering Munger's amazing level of bearishness. I think I heard Charlie predict the decline and fall of western civilization as we know it!

Well, it would depend on whether he was referring to Western Civilization or more specifically to American Civilization – which would be analogous to talking about Classical Greek civilization or Athenian.
Extending that analogy a bit further, Athenian civilization reached its apex under Pericles in the middle of the 5th century BCE. It declined during the ruinous Peloponnesian War, and was finally conquered and subsumed by Philip of Macedonia around 370 BCE.
However, Classical Greek civilization still flourished under Philip and his son Alexander. The latter transmitting it across the entire Eastern Mediterranean, where it melded eclectically with other cultures and became what is generally referred to as the Hellenistic civilization. Large elements of Greek culture predominated in the upper classes; the Greek language became the standard – at first for government and trade, later as the lingua franca for the entire region. Greek philosophy and science became the intellectual underpinning from the Nile to the Caucasus Mountains to the Danube, from Mesopotamia to Southern Italy.
When Rome conquered the Eastern Med, Hellenistic civilization was more than incorporated into Roman society, it became an integral part of it (for example, Greek remained the language of the East all through the history of the Roman Empire). When the Western part of the Roman Empire fell, the Eastern half largely returned back to being Hellenistic – Byzantine society can been seen as a Christianized continuation of that social, economic, political and cultural Ecumene. Until the end of the Byzantine Empire with the fall of Constantinople in 1453, one can trace an unbroken, evolving Greek civilization that started back (at least) around 700 BCE.
Not to mention the enduring influence and legacy of Classical Greece and its children, that that stills reverberates in Western Civilization.

So, while it is possible to see from Munger's comments that he is less than sanguine about the future of American civilization, Western civilization, due to the drive and expansion of Europe from the 15th century onwards is likely to be around for quite a while – hopefully as long as Greece's.

Of course, he could be quite wrong in regards to timing; we could be still in the 3rd inning, not the final stretch. Still, regardless of our beliefs, regardless of our wishes, the poet that wrote these lines did rhyme the truth:

"For everything there is a season, and a time for every matter under heaven…
A time to weep, and a time to laugh;
A time to mourn, and a time to dance…
A time to seek, and a time to lose;
A time to keep, and a time to throw away…"
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Oh yeah - Buffett will probably find a use for his $50B pretty soon!

Is that not a mistaken attitude? It is our $50B.
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So, while it is possible to see from Munger's comments that he is less than sanguine about the future of American civilization, ...

As long as you are quoting, let me try one. Apparently after a tour of the United States, George Bernard Shaw was asked what he thought of the civilization of the United States. His reply was "An excellent idea: it should be attempted immediately!"
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Actually JD it's our $30B his $20B since he does own ~40% of the stock!
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i'm starting to feel stupid even about my tiny purchase of OSTK last week!

Why is that?

T
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Oh yeah - Buffett will probably find a use for his $50B pretty soon!

Is that not a mistaken attitude? It is our $50B.


Well about a third of it is owned by shareholders. But unless Buffett decides to allow a dividend (which I think is unlikely even though it isn't a bad idea), shareholders will never see it... so it's effectively his.

T
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HM
Thanks for the history lesson. I don't recall getting this detail in 16 years of school and I doubt this detail is taught today. I do recall being told in college (early 60's) that the logic and reasoning of then current western civilization is more like that of ancient greece than the logic and reasoning of the then current middle eastern culture. Recent events seem to bear out that observation.
sw
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<But unless Buffett decides to allow a dividend (which I think is unlikely even though it isn't a bad idea), shareholders will never see it... so it's effectively his.>

Why is that, is he going to steal it or squander it?
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Why is that, is he going to steal it or squander it?

I doubt it.

T
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markreisman,

"Your criticism of Buffett is valid on the fundamentals. I also would prefer that Buffett stick to the tried and true rather than making macroeconomic bets. Still, his bet against the dollar has so far been profitable (although unrealized) from the time it was made."

Please don't regard my comments regarding The Master's macroeconomic bets as critical. It is fair to say I'm skeptical, but I'm open to instruction on this matter.

Basicly, Buffett is saying that nonmarket restrictions on the value of the dollar, such as the Chinese peg, have to give. He has a long record of being right, so we'll see.

All I'm saying is that this is a different bet for The Master. I'm sure he knows it. I lknow it too, and I'm keeping a wary eye on it.

BTW, Warrn's and Charlie's panning comments on gold were point on; gold is not a store of value. Buying gold is silly. I agree with Buffett on most everything, and with respect to his speculation on the dollar, well, just call me....

An interested student,

Mark


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From you

I've never seen Buffett more bearish on the overall market. From 2000-02, Buffett had a few caveats about trying to time the market, but I read his current posture as outright bearish. Charlie is bearish too, but that's to be expected. Buffett is now the bigger bear.

From that transcript:

I don't think we're in bubble time at all in terms of valuations, and I don't think we're close to bargain basement valuations," he said. "Obviously you get more for your money in equities now than say in the summer of 1999."

Ok, so which is right, what Buffett said or your impression? I wasn't there, but your comment is very confusing.

As an aside, his comment about equities in the summer in 1999 obviously refers to SUPER LARGE cap stocks and confirms that WEB apparently doesn't look at entire sections of the market these days (as he noted in that BW article a while back) due to size considerations...
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Could you explain your comment then? Why does shareholder cash not immediately paid out as dividends effectively belong to Buffett if he's not going to steal or squander it?
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Why is that?

well my purchase of OSTK at $34 will probably end up well in the long run, but i think that the majority of us probably still doesn't realise how large is the probability of a random stock XYZ going down over the next couple of years.
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gold is not a store of value.

When Adam Smith was writing "...Wealth of Nations" he observed that Oxford (?) university had written contracts whose payment was to be made half in ounces of silver and half in bushels of corn (which probably meant wheat in England at the time). Because these were long term contracts and they wanted them to be written in terms of something that was a store of value. And both silver prices and corn prices went up and down. He said the combination of silver and corn was very favorable to the university.

So if you do need a store of value, what do you pick? Precious metals? Agricultural commodities? U.S.Treasury bonds? The S&P 500 index? ...
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So if you do need a store of value, what do you pick? Precious metals? Agricultural commodities? U.S.Treasury bonds? The S&P 500 index? ...

In general, I have no idea.

Right now? BRK.

- Pat
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"So if you do need a store of value, what do you pick? Precious metals? Agricultural commodities? U.S.Treasury bonds? The S&P 500 index? ..."

A bit of everything.

Don't forget weapons and land.
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Jeandavid,

Stocks.

Like they say, stocks are an imperfect store of value--it's just that they are better than EVERYTHING else.

Mark
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Mark,

Of course, Buffett is to be complemented.

That's why I am sincere when I call him The Master.

He's hit some mulligans (Brown Shoe), but has been a Tiger on the stock market tour for 50 years.

Mark
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I guess you had to be there.

Buffett said at many points that interest rates were too low, bound to rise, and that he doubted the "soft landing" scenario. He also talked about Volker and the risk of a meltdown. I don't know why the financial journalists in the audience did not pick up on this bearishness by Buffett.

I talked to a bunch of hedge fund aguys and other money managers and they got the same message I did.

Go figure.

Mark
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I talked to a bunch of hedge fund aguys and other money managers and they got the same message I did.

So what's new? Buffett was bearish in the 1996 letter too:

You can, of course, pay too much for even the best of businesses.
The overpayment risk surfaces periodically and, in our opinion, may now
be quite high for the purchasers of virtually all stocks, The inevitables included. Investors making purchases in an overheated market need to recognize that it may often take an extended period for the value of even an outstanding company to catch up with the price they paid.


http://www.berkshirehathaway.com/1996ar/1996.html


Can't remember a time when he was optimistic.
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Can't remember a time when he was optimistic.
Buffett was bullish in the 1970s. In 1974, he said in a Forbes magazine interview that he felt like a sex-starved man in a harem. He wrote a piece for Forbes in 1979 arguing that stocks were an excellent investment. He wrote "You pay a very high price for a cheery consensus" and that those who were waiting for a better price were likely to maintain that position well into the next bull market.
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Hey.

I not only read the article, I've got a copy!

(I also bought all I could at the time.)

Mark
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AtlantaDon,

I wouldn't worry about him AtlantaDon. This is what he does lately-- just utters negative quips about Berkshire to try to get a rise out of people. I'm guessing he lost some money on Berkshire in years past when he was using his infamous margin strategy, and now he's bitter.

Bill
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I don't know why the financial journalists in the audience did not pick up on this bearishness by Buffett.

Who owns the financial journals? Who advertizes in the financial journals? Could they have an interest in a bullish attitude and may this not affect the reporting?
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IllustratedMan, in your 1996 Buffett said:
to catch up with the price they paid.

that's not the same thing as "let's see in 1 year about wheere interest rates are".

MHirschey, how many times did he say this about interest rates? If he he really said it a lot, I think that means a lot. I think Buffett is saying the following:

-there's no equity bubble (no greater fool game or super-high valuations)
-equities are richly valued though
-bonds are overvalued and interest rates too low
-rates will rise and this will be the cause/consequence of an exogenous event
-this exogenous event will cause stocks to decline hard
-barring such an event stocks will not decline hard

vg
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valueguy 88-

I not believe that Buffett said that rising interest rates will necessarily cause an exogenous event. He says that he sees the risk of an overforeseen event that could cause a temporary upheaval in markets due to two factors: 1) the growing US dependency on foreign governments due to the large and growing deficits; and 2)the concentration of decision-making in the hands of a small number of large financial institutions due to derivatives. Because of these two factors, he sees greater risk that any exogenous event of whatever nature could produce a large temporary dislocation in the financial markets.

markreisman
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AtlantaDon -

I wanted to clarify something I wrote a while ago. I said:

Well about a third of it is owned by shareholders. But unless Buffett decides to allow a dividend (which I think is unlikely even though it isn't a bad idea), shareholders will never see it... so it's effectively his.

I never for a nanosecond thought that Buffett would embezzle or squander Berkshire's surplus cash hoard. I just don't think he will pay a cash dividend as long as he is running Berkshire (for reasons I would be happy to go into if anyone cared what I thought). This is what I meant by "effectively his" -- perhaps I should have said "will continue to be controlled by him indefinitely". I don't think he's going to buy $50 billion of hamburgers and eat them.

T
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Yes....please tell us why you believe he will never do that, as long is he is around.
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