måndag 16 maj 2011

Bullish Buffett

Morgan Stanley sammanfattade från Buffetts frågestund. Buffett är grymt bullish (obs... på USA...på lång sikt. Detta har ingenting, nästan, att göra med huruvida börsen ska upp till årsskiftet eller inte)

End of QE2: This is the most advertised open market purchase in history...the 'end' is already in the price. And people overestimate the effect of monetary stimulus; it's the natural powers of capitalism is what are getting us out of the crisis.


US economy: How can anyone be anything but enthused about US economic future. Recessions come and go when excesses come and go and capitalism corrects for this. There is always a list of 10-15 reasons that the country will not do well and growth may not be a straight line, but the potential for the US has not been used up...especially as state capitalists in places like China open up new economies that have been dormant for centuries.


Gold: Doesn't make any sense...all the gold in the world is worth $8 trillion. There are roughly 1B acres of farmland in the US and all the farmland is worth a little over $2T. And if you take 10 ExxonMobiles, they would be worth around $4T. So you could have all the gold in the world or you could buy all the farmland in the US, 10 ExxonMobiles and still have more than $1T to play around with.


Housing: It will turn up by yearend. We are creating households faster than we are building houses and we are losing houses due to tornadoes. Excess supply is being taken out and foreclosures will start to come down later this year. 90pct of people are paying mortgages on time, housing affordability is at all time high, population growing 3m pa, all those need a home which bodes well for home prices and housing starts next year.


Banks: Losses are going down and the worst is likely over. Profitability will be considerably lower ahead in comparison to the early 2000s because leverage will be reduced which is a good thing for society. Jamie Dimon's letter to shareholders shares an interesting view he agrees with (below). 


Commodities: In general has no idea how to have an edge investing in commodities. But he does know people who have an edge investing in stocks and distressed debt. Oil...you are dealing with a finite resource. He doesn't know if the world is up to 88 or 89 million barrels a day, but that is a lot of oil to take out each year. You put a lot of straws in the earth. Oil will sell for a lot more one day.


What to invest in during inflationary times: Yourself...people who have made investments in themselves see their wages increase with inflation. They also don't have to make an additional investment in themselves. Should also think about a long term real estate asset like a farms where additional capital is not required to finance inflationary growth.


What not to invest during inflationary times: Businesses with huge receivables and inventories. Their volume stays flat and they have to come up with more money to finance that volume. Almost all currencies have lost in value over time.


Agricultural Prices: There will be times when cotton or corn prices double and it will hurt consumer staples or clothing manufacturers. But if you go back centuries, buying cotton or corn was not a very good investment


His appreciation for bankers: Company called Fetzer had been shopped by First Boston to a number of companies. Buffett sent the owner a letter saying that he would pay $60 a share and they made a deal even though they had never spoken before. The banker from First Boston had a contract that gave him a fee even though he had never called BRK. He then mentioned to Charlie that his team had prepared a book for this deal and asked if he would like to see this book. Charlie said that he would pay they guy $2M if didn't show him the book.


Potential for US debt crisis: US is not going to have a debt crisis as long as it keep issuing notes in our their own currency. When you can borrow in your own currency, all you have to worry about is the printing press and inflation. The Japanese have followed the same policy and even though they have a high debt to GDP ratio, they have had a good ability to pay back that debt. On the other hand, if you are a member of the Euro you have given up that right. 


Debt Ceiling: If Congress did not raise the ceiling it would be one of the more asinine things that Congress ever did and arguing about it is just a waste of time. They once passed a bill in Indiana that pi should be equal to 3 so that school children could use it easier so wouldn't put it pass them but with such a large deficit, it doesn't make sense to have a debt ceiling.


Water: Don't pay too much attention to the water issue. If there is enough energy, you can find enough clean water. Israel makes a lot of clean water from sea water.


Since Warren suggested we should read Jamie Dimon's letter to shareholders to get a better view on banks...here are the highlights...should have titled it: idea- buy banks!

5 yrs ago few people worried about black swans, today people see one behind every rock. Its conceivable self-sustained recovery powers through many negatives...consumer is strong...spending at levels similar to 07 but not not leveraging up...actually saving money. Banks...well you need them...growing world needs large scale capital creation...so can't over regulate...and even with regulation...returns will be fine.

Europe will work through its problems...process is messy but consequences of giving up could be far worse: sovereign defaults leading to bank crisis with serious economic consequences. Since it is same money (either give it to Greece or give it to bank that lost money bc Greece defaulted and you have to recapitalize it) its better to fix the problem without causing additional problems. Hence sovereign crisis will be fixed with minimal damage. Great for banks.

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