Monday Morning Quarterback: The Frisky Buffett
Oracle of Omaha changes with the times.
"Stand-up philosopher. I coalesce the vapors of human experience into a viable and meaningful comprehension." --Comicus, History of the World: Part 1
It's not easy being iconic. As social mood shifts, the wunderkinds of yesteryear are held to task for efforts and attitudes that shaped periods past. We've spoken of this socioeconomic dynamic in various degrees in Minyanville as we flipped the switch into the Age of Austerity.
We wondered if it was coincidental that the mainstream obsession and subsequent fall from grace of Paris Hilton, Lindsay Lohan and Britney Spears was a leading indicator of the decline from all-time highs in financial markets. Ditto the proliferation of performance enhancing drugs in Major League Baseball as a mirror image of the immediate gratification mindset that dominated the apex of conspicuous consumption.
They say the leaders coming out of a crisis are never the same as those that enter it. It makes sense if you think about it-a seismic readjustment in markets alters the risk appetite of the participants and the attendant redistribution of wealth forever alters the perception of money and its role in society.
Perhaps no single man has come to personify successful investing more than the Oracle of Omaha himself, Warren Buffett. Old school Minyans know I have incredible respect for the man, not only for who his is and what he's done but how he's done it, with persistent integrity and class.
Over the weekend, during the annual Berkshire Hathaway (BRK-A) annual shareholder meeting, Mr. Buffett spoke and the world again listened with rapt attention. The context of this particular gathering was unique as it was the first corporate event since Moody's and S&P downgraded Berkshire's credit rating in prior months.
The tenor of the meeting was somber, relatively speaking, given the almost 40% decline in Berkshire Hathaway's share price since September. Perhaps more surprising was the tone of Mr. Buffett himself, a gentleman with a longstanding reputation as congenial, folksy and wonderfully philanthropic. Indeed, Mr. Buffett was kind enough to sign the Minyanville all-star guitar a few years back, a gesture helped The Ruby Peck Foundation help rebuild libraries on the Gulf Coast following Hurricane Katrina.
This weekend, according to Bloomberg, Mr. Buffett "lambasted bankers, insurers and regulators for being blind to the possibility home prices could fall and said their shortcomings caused the worst recession in half a century." Using words like "sewage," he blamed the media and regulators for missing the danger and said the upcoming stress tests wont advance his understanding of the financial stocks the company owns, including Wells Fargo (WFC), Goldman Sachs (GS), US Bancorp (USB) and Bank America (BAC).
My grandfather Ruby taught me many things, such as my name and word are all I have and honesty, trust and respect are the construct of any successful endeavor. I've always viewed Mr. Buffett through a similar lens as he is seemingly cut from the same cloth. For me to call anyone "Rubyesque" is without doubt the highest complement I can ever offer.
To point fingers at the media and financial industry as a whole, however, speaks only to a portion of the story. Culpability extends from individuals who overextended on their credit to the institutions who financially engineered the marketplace to policymakers who were complicit by acceptance to the CEO of the United States of America during the Grand Experiment.
This is not a political statement; it is one of shared responsibility for the many years of cumulative excess. And while much of the mainstream media missed the perfect storm forming on the horizon, some media outfits loudly clanged the bell (here, here and here) with hopes that the masses would seek shelter for their family finances
How has the government responded to the crisis? They've spent, lent or committed almost $13 trillion dollars-the value of almost everything produced in the U.S. last year-to save the capital market construct from systemic collapse. That may have staved off the immediate storm but the unintended consequences are pervasive and unavoidable.
You simply cannot cure a debt bubble by inducing more debt as the price must be paid by this generation or the next. Perhaps more troubling, as the ramifications of this crisis evolve from financial to economic to social, is the potential that societal acrimony shifts to social unrest and geopolitical conflict. That remains a viable risk as foreign holders of dollar denominated assets bear the burden of a global financial pandemic borne from stateside greed and excess.
While Berkshire continues to hold substantial derivative exposure-seemingly inconsistent with Mr. Buffett's once famous view that they were financial weapons of mass destruction-the firm had slightly below $20 billion at the end of the first quarter, a kitty that should serve it in good stead. That is consistent with an oft-stated theme in Minyanville, that financial staying power will allow individuals and corporations to uniquely prosper once we find our way through this prolonged period of price discovery.
To that end, and to as a little levity goes a long way, I'll offer Kevin Depew's awesome assimilation of Mr. Buffett's tips for individual investors, which I'm sure he'll circle back to in one of his forthcoming 5 Things:
We've got a big week ahead so saddle up Minyans and remember that profitability begins within.
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