Arrogance Takes Center Stage
"The 86 year old told the 25 million of Americans who comprise the 16.7% of the underemployed population in the country, to "suck it in and cope." Not only that, but apparently, all those who have been without a job for 99 weeks and more and no longer have recourse to insurance benefits, should "thank God for bank bailouts." Why of course he would say that: after all $26 billion worth of direct BRK investments were the recipient of over $95 billion in bailouts."
Charlie Munger, 86, Principal at Berkshire Hathaway, to University of Michigan students
Bear markets have a way of dethroning idols. The latest will surely be Warren Buffet, Charlie Munger, and the money juggernaut known as Berkshire Hathaway BRK. Buffet has of course been hailed as a ‘legendary investor.’ He is the only one to make it to the Forbes 400 Richest List by investing rather than inheriting or going public. But it turns out, Warren has friends in high places.
The old guard in Russia collapsed in 1989 with the Berlin Wall. After a couple of iterations a new sort of criminal oligarchy has emerged. All Putin has to sell are commodities dug from Russian earth. If one helps him do that, one prospers.
The same thing seems to be happening in America. Let’s follow the money shall we? BRK is a substantial investor in Wells Fargo. Wells Fargo bought Wachovia which had acquired Golden West Financial. Golden West specialized in what one writer called zombie home loans. Part of the interest payment could be deferred and added on to the note. Both were guilty of predatory lending. Adjustable rate mortgages were often substituted for fixed rate mortgages. Sub-prime was passed off as first mortgage, government guaranteed. And so, Wells and the rest needed a bailout. They got it.
Now a handful of privileged big banks, JP Morgan, Wells, CITI, Bank of America, and Goldman Sachs are the recipients of ‘too big to fail’ stimulus bailout money. Now, has that money gone into productive enterprise to create the jobs that the Administration promises?
Uh, no. As a matter of fact a lot of that money has gone into the stock market. Just today I read that the CEO of Wal Mart notes people come shopping for baby formula at month end at 11 PM. After midnight they head to the check out aisle. The government support check has been electronically deposited to their accounts and now they can pay for the items. The CEO makes the point that WMT is always open, the timing of the deposit determines when to shop.
In this case the stock market is not the barometer of the economy. It is not even a reflection of the economy. With one of six people on food stamps, three million skipping mortgage payments, and eleven million homes under water, what is going on?
The demand for money is zilch. There is no magic in Bernanke keeping rates low when low demand is near non-existent. Product demand is near non-existent. Want a new car, pick one off the lot, nothing down, no interest, get lost, they do not want to repossess And so the stimulus money has found its way to stock market speculation. While the 2.5% S & P dividend rate is low, since the money is free, why not invest? Markets move up at night, and languish during the day on low volume. At Goldman Sachs, the High Frequency Trading Machine bumps the market, truly as Oliver Stone says, Money Never Sleeps.
Too many are looking for the next crash. This fall is shaping up like last fall. We may get a sell off, but it is likely to come from S & P 1175 or higher. And at that, even a 200 point sell off would keep us at Home in the Trading Range. The mid term elections loom. And there are pay offs to be made, from the new Oligarchs on Wall Street to the benefactors in Washington. It can’t go on forever but it has and will for a while. In the mean time, suck it up and cope as Charlie says. I wonder if that advice will make it to the annual BRK shareholder letter?
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