August 22nd, 2008 by admin
CNBC had a loooong interview with Warren Buffett yesterday morning as a tie-in with the new movie I.O.U.S.A., a documentary featuring interviews with Buffett and other financial figures like Alan Greenspan. I’ll try to highlight the main points, and Clusterstock (linked below) also highlights specific points from the interview.
* Many financial firms are finally telling the truth about their condition and the state of the products they hold, which is rippling outward into the markets.
* Housing is slowing down and the troubles in the retail sector are far from over.
* Things will continue declining over the next six months and even beyond that period.
* The recession will be long and deep, though the USA will probably be better off five years from now.
* Fannie Mae and Freddie Mac had a blank check from the government, but they tried to run themselves like hedge funds and grow earnings beyond expectations.
* There is a possibility that the equity/preferred stock of Fannie Mae and Freddie Mac gets wiped out.
* Even billions of dollars would be inadequate to save Fannie and Freddie.
* OFHEO dropped the ball and let this situation get out of hand.
* Derivatives are weapons of financial mass destruction and incredibly difficult to manage.
* Derivatives pose systemic risks, and in Berkshire Hathaway’s case, they had to be unwound after the purchase of Gen Re.
* Debt isn’t inappropriate per se, unless it spirals out of control as a percentage of GDP.
* There won’t be a debt crisis, but there is the possibility of significant inflation.
* Investing in yourself is the best decision. The next best place to invest is in companies that don’t require much capital investment.
* Fannie Mae will probably not be an independent entity for much longer.
* Credit companies (like American Express) are experiencing credit deterioration in all segments, even up to wealthy customers.
* The world has no buffer in terms of dealing with rapidly increasing oil demand.
* The world will have to learn to use a lot less oil.
* It’s dangerous over time to run large current account deficits, though we will still have a more prosperous society in the future.
* It hasn’t paid to bet against America in the history of the country and the time to start isn’t now.
* The goals of the Federal Reserve are in direct conflict (stimulating growth while containing inflation) and there can occasionally be a tendency to ignore inflation for a while.
* The USA exports 12 percent of GDP and imports 17 percent of GDP. If that gap continues, the dollar will get weaker, though Berkshire Hathaway currently doesn’t have any bets against the dollar.
* Ask politicians what they believe in that a majority of their constituents will oppose.
* The rise in inflation and commodity prices is forcing businesses to pass price increases onto customers.
* CPI understates inflation and inflation is going to increase significantly.
* There will be a fair number of bank failures (but only the dumb banks will fail).
* If Bear Stearns fell, it would have led to a domino affect among other financial institutions.
* There should be penalties for spreading rumors about banks.
* The consequences of speculators buying houses with no down payments will create fallout for a considerable period of time.
* Warren Buffett buys stocks when they are cheap relative to their long term earning power, and homebuilders don’t seem to be in that place yet.
* China and India are going to do amazingly well over the next ten or twenty years.
Source:
http://www.clusterstock.com/2008/8/that-awesome-warren-buffett-cnbc-interview
