Listening To Warren Buffet Could Create The Next Depression

Toogood Reports ^ | May 9, 2003 | Mary Mostert

[Stand Watch Listen]

At the risk of being tarred and feathered by Warren Buffet devotees, who live by every word that escapes his mouth, I´m not at all convinced that his pronouncements are good for America. Warren Buffet basically has made his billions by purchasing companies below their true market value and then using conservative business decisions to grow them. There is no doubt this is a workable money-making strategy and making money appears to be Buffet´s primary goal in life.

He did not buy computer-based .com businesses during the 1990s that were the major instruments of the incredible rise in stock market "values." In fact, Buffet warns us that we should beware of "transforming business inventions" that fuel booming economies. "Two of the most important technological developments of the 20th century were the automobile and the airplane." he says.

While both inventions have changed and enriched our lives, Buffet claims most investors lost money on both inventions. At one time in America there were 2000 automobile makers. Today there are only three. Once there were 300 airplane manufacturers. Today there are only a couple. "If I'd been at Kitty Hawk in 1903 when Orville Wright took off," Buffet said, "I would have been farsighted enough, and public-spirited enough – I owed this to future capitalists – to shoot him down."

As a denizen of the .com era, it was obvious to me in the 1990s that most of the stocks, including stock in the company I worked for, became over-priced as the stock market shot up. The problem, from the very beginning, was simple. Most of the .com companies of the 1990s either made no profit or only a modest profit.

Profits were not what fuelled the rise in stock prices. It was hope and optimism for the future that pushed up the Dow prices. That optimism led many people to foolishly speculate on stocks, rather than invest in companies, and, even more dangerous, to actually or mentally spend the money they believed their stocks were worth. Twenty-something millionaires were not uncommon – based on their stock portfolios.

When the stocks went back down, beginning in the mini-crash of 1998, speculators felt cheated and naturally looked for someone to blame – the business owners, their stock broker or financial advisor. However, much of the .com stock was not sold on the big board in New York. In a couple of companies I worked for, investor money was used to fund an idea and several years later, once the company was up and running, often manned by young, creative, dedicated workers willing to stay at their computers without overtime pay or for stock options.

In reporting what happened to the high tech bubble, Arnold de Borchgrave, editor-in-chief of United Press International, wrote the other day:

"Buffett, a $36 billion Democrat, warned some 10,000 stockholders and 5,000 guests in Omaha over the weekend, there would be a disconnect between ‘people at the top and the share owners who give them the money.´ Add to this the avalanche of corporate scandals – more in five years than during the entire 20th century – that failed to trigger real reform, and greed, which has inflicted more harm to the world's greatest free enterprise system since Sept. 11 than al-Qaida's terrorists."

So, here we have Warren Buffett, with his $36 billion, telling us peasants out here that other CEOs, who pull down $1 to $7 million a year are just corrupt scoundrels and he, with his $36 billion, is the small guy´s hero. Am I the only one that finds something missing in this picture?

Was it just corruption that prompted people in the 1920s to invest in automobiles and airplanes or was it mostly optimism and hope for the future? Who REALLY profited from the 1990s downturn when the savings of little old ladies were wiped out? Wasn´t it Warren Buffett who snatched up the undervalued stocks, sold by frightened little old ladies, and transferred a few million into HIS portfolio as they rose in value? While that is certainly smart capitalism, why is Buffett now being portrayed by the socialist leaning media as the hero in this scenario?

Of course, it could be that he gets a pass because he´s a liberal Democrat and is quite generous in his donations to liberal Democrat candidates and the abortion industry, to which most of his fortune will go when he dies, we are told.

However, corruption by company executives wasn´t the main factor in the euphoria of either the 1920s or the 1990s. The optimism and enthusiasm of .com employees who worked long hours without overtime pay, grew most .com companies I saw. Young people believed in their abilities and their future and were happy to have an opportunity to purchase stock in the companies for which they worked.

Sometimes stocks go up, and sometimes they go down. Some creative ideas win big, others flop. However, if demagogues get involved in the blame game, sometimes those downswings last a long time. In the presidential election of 1932 Franklin Delano Roosevelt and the Democrats blamed the worldwide economic problems on American "robber barons," wealthy Republican business owners who employed thousands of people. People´s hope and optimism vanished, they got scared, stopped buying, hid their money – and it took the stock market 25 years to regain its 1929 values.

Today another wealthy, highly visible Democrat is trying his best to convince people to get out and stay out of the stock market and again, Republicans are being blamed. Yet if most investors take Buffet´s advice, naturally more business will fail for lack of investment capital. Buffet could then have his pick, buy them and make lots more money. Those he can´t or won´t buy will go out of business, and more jobs will be lost.

It happened in the 1930s and it CAN happen again – if young people listen to Warren Buffet and lose their hope for the future, their enthusiasm, creativity and determination to work hard for their latest new idea.

Like cars and airplanes, the Internet and computers are here to stay. And, there are lots of new ideas out there that can and will make money and create new jobs – if investment money is not totally dried up by scare tactics, the blame game, multi-billion dollar lawsuits and billionaire Democrats who try to scare people for political or financial gain.

[lucyblue]

bump

[walden]

Keep this BUMPED!

[MinuteGal]

I watched Buffet the other day on the Cavuto show. I was ready to throw myself off a cliff because of all the gloom and doom I heard from his mouth. It was so negative and destructive that I felt that this oily character was actually an enemy of his own country's well-being. Neil offered none of his usual challenges, altho in fairness, Buffet mouthed off at such length that I think Cavuto ran out of time.

The replier above is correct. Buffet has his own $$$ agenda, nothing more.

Leni

[Black Agnes]

ping.

[OldPossum]

In the article it is noted that making money is Mr. Buffett's "primary goal in life." From what I have read, it is his SOLE goal in life. Never understood those individuals who cannot call it a day and retire.

[fightu4it]

"Listening To Warren Buffet Could Create The Next Depression."

Should read:" Not Listening To Warren Buffet Could Create The Next Depression."

[fightu4it]

What is Alan Greenspan's net worth? End of arguement!

[fightu4it]

When BH got into negative numbers a while back, Buffet worked some magic and they were in the black again.

Greenspan, with all the resources available to him, has not been able to produce anything even close!

[SamAdams76]

If I hear "Cheeseburger in Paradise" one more time, I'm headed into depression. I am so sick of this guys music. It was old 20 years ago. I went to a Parrothead concert once. It was sheer hell. A bunch of over-the-hill, beer-bellied middle-class managers in Hawaiian shirts pathetically trying to grasp a last shred of their youth as they sip $7 frozen margaritas out of plastic cups. Yeah, I was one of them. But never again. Never again.

[Stand Watch Listen]

errrrr... that would be Jimmy, not Warren but this would explain the confusion... ;-)

"....trying to grasp a last shred of their youth as they sip $7 frozen margaritas ...."

[Marysecretary]

Now he's telling everyone that Bush's tax cut proposal is a bad one. People listen to this crap and believe it.

[Always Right]

Buffett, a $36 billion Democrat....

If Buffett is so smart why is he a Democrat? Buffett may be genius on how he made his money, but he is far from a guru on everything else. I frankly am sick of the doom and gloomers that post daily crap about the coming depression.

[cynicom]

Regardless of how the econmy performs, Buffett will make money. Therefore he feels free to argue either side of the economy.

[betty boop]

...there are lots of new ideas out there that can and will make money and create new jobs – if investment money is not totally dried up by scare tactics, the blame game, multi-billion dollar lawsuits and billionaire Democrats who try to scare people for political or financial gain.

Great post, Stand Watch Listen. I truly admire Buffet's business acumen; but really, he may be engaging in setting up a self-fulfilling prophecy here, as the present author suggests. He's a guy who has made a ton of money out of distressed businesses. If he helps to dry up capital formation with his predictions of doom and gloom, then he of all people would stand to benefit.

I'm surprised that nobody has yet mentioned the "significance" of last week's Kentucky Derby winner, Funny Cide -- the first gelding since 1929 to win the Derby. Of course, we all know what happened after that -- the stock market crashed, and a depression that lasted some ten years settled over the land. People looking for "signs and portents" by which to know the future might want to put that "negative leading indicator" into their ruminations....

[wardaddy]

Buffet is a very successful raider. He is not here to help anyone but himself and his shareholders. A gringo Soros.

[appeal2]

Sir John Templeton, a $5 billion dollar republican who fled excessive taxation in the US by moving to the Bahamas states that tax cuts are like magical elixer to the economy. Take your pick.

[STONEWALLS]

.....I'm a former BRK shareholder......I got out because of his steadfast refusal to pay dividends and at my stage in life I want dividends....he knows that if dividends are ever tax free he'll be under stockholder pressure to distribute profits and he doesn't want to do that....he doesn't want to let you keep your money.....same as the big Libs in Washington.....
Good luck to everyone!
Stonewalls the Ant

[Jackie]

TO: ALL

Where will THIS story go?:

NYSE's Grasso rakes in $10M

Report: Chairman of the exchange amassed retirement package between $80M-$100M.

May 7, 2003

[Excerpt]

NEW YORK (Reuters) - New York Stock Exchange Chairman Dick Grasso, facing a market downturn and criticism of the exchange's specialists, earned more than $10 million last year and has amassed a retirement package worth $80 million to $100 million, according to a published report Wednesday.

CLICK

[CdMGuy]

I'll take Templeton any day. Buffett is a Democrat who has made lots of money. Well, good for him, but where was he when Clinton was president? Now, he comes out of the woodwork and continues issuing negative statements the past two years. Good for Greenspan for coming back at him.

Buffett thinks that his poop doesn't stink, and we should all bow down and worship every time he speaks. No thank you, Warren. Personally, I think that your lifestyle is just as weird as your pronouncements.

[razorback-bert]

WB is making the "doom & gloom" crowd look like Pollyanas.

[arete]

Buffett has it right as he almost always does.

Richard W.

[mombonn]

I heard him interviewed earlier this week- he was indeed depressing. It's Friday night, I can't bring myself to read about him after listening to him the other day.

I used to respect him. He now strikes me as a buffoon.

[Phaedrus]

Thanks for the ping, bb.

You know that I'm a Warren Buffet fan but this is because he's earned my respect -- I slavishly follow no one's thought or prescriptions on any subject. That is almost my "trademark". And I will always have more regard for someone who has "done it" versus someone who just writes about it.

Buffet runs a conglomerate and does so superbly. And he gives loads of credit to the CEO's of specific companies, rightly. He doesn't just "buy low and hold". Even the logic of this asserted stragety is suspect. Do you not think that if all the bright people on Wall Street could "buy low", they would not? What does this mean?

Buffet's stuff should be read before one judges him and this should include his Annual Letters in the Berkshire Annual Report to Shareholders (available online all the way back to the 1970's). They are deeply insightful, reflect a very high standard of excellence and Christian morality, and are exceedingly educational.

When Mary Mostert shows she can "do it" as well as "talk about it", I will listen. And it should be added that her article finds an audience only because of Warren Buffet's accomplishments and reputation.

Yes, I'm a fan and am in no way hesitant to say so.

[arete]

He now strikes me as a buffoon.

Buffett has more savey and integrity in his little finger than all of Washington and Wall Street combined. If he's a buffoon, then we sure as heck need more buffoons. Very smart investor who tells it like it is.

Richard W.

[Phaedrus]

Buffett has it right as he almost always does.

It's hard to argue with a guy that began with nothing and has been so right for over 40 years that he's a billionaire. He shouldn't be ignored, or trashed for that matter, simply because we don't like what he's saying.

[Phaedrus]

Buffett has more savey and integrity in his little finger than all of Washington and Wall Street combined.

I agree with this 100%, and with emphasis on "integrity".

[betty boop]

Thanks for sharing your thoughts, Phaedrus. Warren Buffett may be a very great man. I just think predicting the future is an exercise in futility, on principle. No one can foretell the future. Period. JMHO FWIW. Why Buffett would want to go around terrifying people is beyond me. He's clearly selling doom and gloom these days. That's all I meant to suggest in my last.

[Phaedrus]

No offense intended, bb, and none taken. I do tend to overreact when I think either Greenspan or Buffet is being attacked. I know both reasonably well and business, markets and such are something I know a bit of something about due to my background. Both men have earned the esteem in which they are held IMHO.

[Phaedrus]

He's clearly selling doom and gloom these days.

Maybe he's right.

[betty boop]

Maybe he's right.

Maybe he is, Phaedrus. Me, I'm just an optimist I guess. In any case, it seems to me the best course is to seize the opportunities that come to hand and try to turn them to good account, rather than worry and complain about conditions not being "better" than they are, or are predicted to be. Buffett may well be right; but that's not the same thing as saying he's being helpful when he undermines the public confidence it takes to stabilize the economy (at whatever level), and to promote its growth from there. The "D"-word these days is: Deflation. Arguably, he's not doing anything helpful to counter such a development, if one is in fact on its way.

[Phaedrus]

And maybe he's just getting too old. People often turn negative with age. And I've found the people don't listen very much to anyone about anything. If the Wall Street gurus had been watching and listening with care all these years to the "Oracle of Omaha", they and we (pension holders) would all be incredibly wealthy. And maybe, believing in the American Ideal all those years, he got lucky. Maybe what he's really saying is that the American Ideal is dying. (and, Boy, am I on a roll this Sunday evening -- think I'll take my "Happy Pill" and go to bed ... ;-})

[Phaedrus]

All the same, his analyses are astute and I read them with care. His arguments are very tight, filled with facts and insight. I think we ought to focus on something specific that he as written to see if and where we disagree.

[kms61]

Perhaps so. Nevertheless, we've found out over the past couple of years that the game is rigged. There's a whole generation of investors out there who've learned a hard lesson about trusting CEO's, CPA's and investment bankers. Blame Enron, Global Crossing, Worldcom, and a host of others for that....not Warren Buffett.

[wardaddy]

I damn well will blame Buffett when he pisses all over a sector and drives down the market value and then buys in later claiming it's now a good deal or a sound long term play...since he himself brought it down to some degree.

He's smart but a phony. I despise him.

[wardaddy]

I'll take him or the old crusty Vanguard honcho over Buffett anyday.

[Southack]

"Today another wealthy, highly visible Democrat is trying his best to convince people to get out and stay out of the stock market and again, Republicans are being blamed. Yet if most investors take Buffet´s advice, naturally more business will fail for lack of investment capital. Buffet could then have his pick, buy them and make lots more money."

The timeframe for Buffet's theory (above) has already passed.

The War in Afghanistan is over.
The War in Iraq is over.
Interest rates are low.
Inflation is dead.
The Dollar is dropping in value overseas, making U.S. exports more cost competitive, and making foreign imports to us more expensive and therofre less competitive.
Productivity is up.
We've got two tax cuts kicking in.
The accounting scandals are past us.
The dot com boom has already burst.
And then there is the real kicker, all of the money that is sitting on the sidelines.

Ameritrade's CEO reported last month that 26% of all of his clients' funds are in cash.

Dick Grasso of the NY Stock Exchange reported last week that a full $6 Trillion, yes, that's half a dozen TRILLION Dollars, is parked on the sidelines in money market accounts.

People, you don't get market crashes when that kind of money is ALREADY out of the market waiting for a chance to get back in.

Most of the professional hedge funds are SHORT on the market, too. They are getting killed. The kids who run these monster-sized funds have watched the NASDAQ rise 35% since last October. Can you say "short squeeze" boys and girls?! I knew that you could.

So betting for Buffet's way to continue is a bit passe, in my view. The prime time for talking down stocks en masse has already passed. Sure, a few individual stocks are still overbought and could use a good selloff, but that will be the case for every day of our lives.

As for me, I'm betting on the Long Boom, and I'm not afraid to say so, either. I'm buying high-dividend paying stocks, and in most cases I'm writing covered call options on them to hedge my downside, protect my dividends, and increase my monthly cash inflow from those stocks.

But Buffet and I do share at least one thing in common in our investment strategy: we aren't Short on American stocks.

And while you'd probably expect that from me, isn't that a bit strange when you think about it for Buffet; a man who continually tries to portray (at least in public) the market as being overvalued...

[wardaddy]

I'm with you.

I'm long 50%.
Commercial Real Estate to pay bills.20%
Individually managed Bill Gross account as a hedge.20%
Cash in the form of 3 year staggered corp. bonds 10%

Barring a cataclysm...I feel fairly good but I don't expect a major boom. I'd be happy stabilizing just this side of 10K.

And I'm taking major gains off the table this go around.

[Southack]

Precisely. The mania has passed, so the time for home runs is long since gone, so it makes sense to take gains where they present themselves as other attractive options open up, rather than hoping that a stock will make a run to the Moon.

Of course, when you write covered call options, it's pretty much a given that you aren't going to hit any home runs!

[wardaddy]

I confess....I will short like a dog at times but I have never played options. I did play e-mini futures...disastrously.

I am not day to day trading now. I do have my input. My Paine Weber guy has spread the equities between Berekley, Sarofim, and someone else new.(specialized MMs)....between Large Caps exclusively at one, Mid-small caps at the other, and international at the third. I pull up the daily trades...all on wrap.

I will make changes as I see fit. I wish I had panicked back in 05/00 and then later after 9-11 but I did not. This is my new strategy. We sold the dogs and are looking for gains since I have a lot of cap losses to use up hopefully.

I will pay attention to adjusting profit taking now...something I did not do before. I feel I'm too late to play hedgehog...damn what are there now...like 5000% more hedge fund capitalization than 3 years ago. There is some wunderkid here in Brentwood who runs a hedge fund with about 500M by himself with an assistant. Bet he has restless nights...lol

[cowtowney]

"So, here we have Warren Buffett, with his $36 billion, telling us peasants out here that other CEOs, who pull down $1 to $7 million a year are just corrupt scoundrels and he, with his $36 billion, is the small guy´s hero. Am I the only one that finds something missing in this picture? "

Buffet is giving sound advice that CEO's who rip off the shareholders should be heavily scrutiinized. This advice should not be discounted because it came from a wealthy democrat.

Furthermore, to suggest that Warren Buffet has such power that he can convince people to stay out of the market so he can buy up companies at low prices is ludicrous. The market is a tad more efficient than that.

[Grampa Dave]

The Gold bugs and those who hate America love Buffet.

When I hear him rant like we shouldn't have a tax cut, I see the Da$$hole, The Clintoons and all of the lying Rats on the hill and in the media.

When he rants as a multi billionaire that we don't need a tax cut, you know where his leftwing heart is. He wants to reelect Rats, remove GW and make bundles as they do their things to the economies.

His lack of paying dividends on his stocks is enough to turn me off.

$crew him! Invest in the good indexes and laugh at him.

[Grampa Dave]

You have nailed this left winger with this analysis:

I damn well will blame Buffett when he pisses all over a sector and drives down the market value and then buys in later claiming it's now a good deal or a sound long term play...since he himself brought it down to some degree.

[Grampa Dave]

Amen about this elitist left winger. You posted:

I'll take Templeton any day. Buffett is a Democrat who has made lots of money. Well, good for him, but where was he when Clinton was president? Now, he comes out of the woodwork and continues issuing negative statements the past two years. Good for Greenspan for coming back at him.

Buffett thinks that his poop doesn't stink, and we should all bow down and worship every time he speaks. No thank you, Warren. Personally, I think that your lifestyle is just as weird as your pronouncements.

[HamiltonJay]

I worked for 1/2 a dozen companies in the 90s, or so, and I can tell you the CEO's of the vast majority of them were complete scoundrels... they weren't interested in creating wealth, just manipulating company value on paper for cash out! Buffet is right on on his characterizations of most CEO's, particularly in a speculative market.

Buying below value and conservatively upping their value is a guaranteed way to make money. Speculation is the roulette wheel. except instead of what 1 in 30something odds you are looking at 1 in a thousand or even greater odds.

Speculation is fine, but it should not be where most uneducated average citizens are pumping their money, they will get taken. Leave the speculating to the speculators.

[betty boop]

I think we ought to focus on something specific that he as written to see if and where we disagree.

Okay Phaedrus! Sounds good to me! (Yet I bet we won't disagree about much, if anything, on substance. My complaint is only about the propriety of Mr. Buffett's recent public comments [not his Annual Statement to Shareholders], given the dicey present circumstances. :^) )

[AdamSelene235]

As for me, I'm betting on the Long Boom, and I'm not afraid to say so, either. I'm buying high-dividend paying stocks, and in most cases I'm writing covered call options on them to hedge my downside, protect my dividends, and increase my monthly cash inflow from those stocks.

Nah. If you were a real bull. You would short gold stocks and stuff the money in out of the money calls.

[Phaedrus]

Okay Phaedrus! Sounds good to me! (Yet I bet we won't disagree about much, if anything, on substance. My complaint is only about the propriety of Mr. Buffett's recent public comments [not his Annual Statement to Shareholders], given the dicey present circumstances. :^) )

Yeh, I think you're right. Often, though, the media filter distorts and I wouldn't underrate that as a source of error and sensationalism. I'll see if I can Google something up, in due course ... ;-}

[betty boop]

Often, though, the media filter distorts and I wouldn't underrate that as a source of error and sensationalism.

I agree that's certainly a possibility! There seems to be a rather large contingent of the press that is working overtime these days to "talk the cowboy's economy down," just in time for the next election. The best way to elect one of those unelectable Nine Dwarfs (or is it ten?) is to make sure a whole lot of people lose their jobs or otherwise suffer financially between now and November 2004. So much for media integrity.... Buffett should be savvy enough to prevent himself from being used as a tool for such purposes. He has a reputation as a man of character. I hope he deserves it, and lives up to it.

[wardaddy]

Thanks.

Buffett has his sycophants....my mom used to be one. She's gotten better.