Warren Buffett Joins the Order of the Shrill

Calculated Risk Reports:

Calculated Risk: Buffett and FDR: Warren Buffett was on CNN's Lou Dobbs Tonight on Wednesday. Here is an excerpt:

DOBBS: Are you surprised when you focus on the two deficits we just talked about, the trade deficit, and the budget deficit? The budget deficit is 3.6 percent of our GDP. The trade deficit is reaching just almost 6 percent of GDP. And the president is talking about reforming Social Security. Does that surprise you?

BUFFETT: Well, it's an interesting idea that a deficit of $100 billion a year, something, 20 years out, seems to terrify the administration. But the $400 plus billion dollars deficit currently does nothing but draw yawns. I mean the idea that this terrible specter looms over us 20 years out which is a small fraction of the deficit we happily run now seems kind of interesting to me. There is no question that the Bush Administration is ignoring the most serious economic problems facing America and that they are more interested in ideological driven issues. The most serious fiscal issues are: the General Fund deficit, the current account / trade deficit, and health care. Why are we talking about Social Security?

I'm reminded of this letter that FDR wrote in 1924 to Delaware attorney Willard Saulsbury.

"I remarked to a number of friends that I did not think the nation would elect a Democrat again until the Republicans had led us into a serious period of depression and unemployment", FDR, Dec 9, 1924

Buffett might find the denial of our serious problems "interesting", but I'm worried that FDR's prediction might ring true again.

I hope not. I remain an optimist; I believe if we acknowledge our problems and address them in a rational manner, we can fix them.

But all I see from the Bush Administration is denial and wishful thinking.

Comments

[tante aime]

Brad,

If you saw the pics of HRH President Bush with HRH Prince Abdullah, holding hands for a quick tet-a-tet at Bush's 30,000 acre "rancho", then your fears might be realized. El Grande Bush must be learning to speak Arabic from his Saudi handlers, because he spends so much time in DeNile.

Hey,oooh!

Anything Buffet has to say is like monkeys flying out of his ass. The boob is betting against the USD and America.

[CalculatedRisk]

Edit: Buffett's comments ended with "I mean the idea that this terrible specter looms over us 20 years out which is a small fraction of the deficit we happily run now seems kind of interesting to me."

The next sentence was my comment. I didn't mean to imply that was from Warren Buffett.

Best Regards!

[Leila]

Jesus, I know climate change is OT to this blog, but I just read Elizabeth Kolbert's article in the NYer. The Bush administration is full of denial and wishful thinking about that, and scientists agree, according to Kolbert, that the situation is teetering towards catastrophe.

I would take economic collapse over ecological collapse any day. Maybe Mother Nature wants a nice economic meltdown to get us all to cut back on carbon emissions, because we won't do it voluntarily, even in the face of impending disaster.

[Marvyt]

I've long been an admirer of Buffett as my favorite cpaitalist. Since he is truly a member of the reality based community, he will not be invited to the Whitehouse anytime soon.

[pragmatic_realist]

"I believe if we acknowledge our problems and address them in a rational manner, we can fix them."

I guess the issue is why people do not address their problems in a rational manner. I realize that this is outside the realm of economics, but isn't it a factor that renders most economic discussions moot?

It is my experience and observation that most people behave rationally (that is to say, making decisions and acting as a consequence of observation and reasoning as opposed to acting in response to habits and impulses) in very limited areas of life. Acknowledging problems and addressing them rationally is the exception rather than the rule.

[P O'Neill]

The recurring puzzle, discussed ad infinitum on reality-based blogs, is why the bond market hasn't blown up in their faces with the fiscal insanity. I wonder if Buffett has gotten burned by trying to go short in bonds -- if he can't successfully short a bubble, who can? And from the other side of the market, why wouldn't the Treasury want to bring back the 30 year when they can sell them into a bubble?

[liberal]

P O'Neill wrote, "And from the other side of the market, why wouldn't the Treasury want to bring back the 30 year when they can sell them into a bubble?"

Who's going to buy them?

IIRC China is mostly buying relatively short maturities.

[macedc]

FDR's comment is dead on
given the real success of the constrained capitalism approach of the latter half of the 20th century, every body has forgotten what the laissez faire BS leads too and it will take a real eye opener to bring the democrats to their senses and the possibility of the country behind them

the worries (other than the possibility of being personally washed away in the financial tsunami) are:

1) the real reason behind the right wings hell bent for leather approach on judiciary is the realization that this is coming and they want the players in place to prevent the next New Deal

2) the real theme behind the 9-11 inspired draconian anti-civil liberties measures lurking is that the right does not intend to lose out this time around; they will use whatever political repression is necessary to forestall the next FDR

3) the later day Father Conklin right wing religiosity revival will form the basis of a radical turn to the right

4) can we say fascism boys and girls

[Derelict]

I think macedc is looking in the right direction. The right has set the aparatus in place, for the most part, to prevent the kind of farsighted policy making and implementation that will be needed to clean up after the present party is over.

A strong case can be made that Roosevelt saved the U.S. from revolution. The present Republicans, ignorant of history, are shoveling gunpowder into the fireplace. The aftermath of the explosion may be the fascism they crave--or it may be an utter repudiation of capitalism as they have known and loved it.

Either way, recovery will take generations. And it's not going to be helped by the steep downward curve of energy supplies that the world is heading into.

[Unstable Isotope]

Warren Buffett is right, of course. Why is only he saying this? Why doesn't every journalist covering economic issues bring up this point?

[anne]

http://www.nytimes.com/2005/05/07/business/07place.html

Blue Chips Reel After a Week of Painful News
By FLOYD NORRIS

On Thursday, General Motors and Ford found out that Standard & Poor's, one of the major bond rating services, had downgraded their debt to junk status. G.M. suffered the additional indignity of not even being deemed the highest quality junk....

The downgrading of Ford was a somewhat greater surprise than that of G.M., but bonds of both companies had already fallen in price, with yields rising, as their prospects deteriorated this year. To take one example, a G.M. bond maturing in 2025, paying 7.4 percent interest, fell on Thursday to $69 for each $100 of par value, to yield more than 11 percent. That was a loss of $4 in a day.

But that bond's price had climbed earlier in the week, on the news that Kirk Kerkorian, a financier known for having done well buying Chrysler stock when it was depressed, was buying G.M. shares. Thursday's price for the bond was barely below where it was a week ago. The big losses were suffered well before this week. That bond had traded for more then $100 as recently as early February....

[anne]

When we think of General Motors bonds falling from above 100 to 69 over some 2.5 months, what seems puzzling is why the bonds should have traded so well so recently. Why should bond buyers have been at all surprised that General Motors was weakening financially? Where were the credit analysts 2.5 months ago?

[EliB]

I'm not sure how appropriate it is to describe Buffett as "a member of the reality-based community" after he decided to lend his reputation to Arnold Schwarzenegger's campaign. Schwarzenegger is nearly as fiscally dishonest as Bush, possibly more so. When Buffett took his job seriously and offered some honest criticism of Proposition 13, Schwarzenegger rebuked him publicly in fairly humiliating terms, and Buffett sat down and shut up.

[Ellen1910]

Gurus age. Warren Buffet, John Templeton, Richard Russell and their cohort are past it.

My money's on Bernanke.

[Ellen1910]

"The big losses [in GM bonds] were suffered well before this week."

Nobody lost anything. GM's bonds cost $100 in February, and everyone who bought them at that price, also, bought futures to protect the downside. They were getting 10% interest on the bonds and spending 40% (I'm guessing) of that interest income on protection.

Stupid statements like this one are the result of an 800 word column limit. If Norris had had a couple of hundred more words at his disposal, he would have told us what the GM bond futures were selling for in February.

[quixote]

>>"I hope not. I remain an optimist; I believe if we acknowledge our problems and address them in a rational manner, we can fix them."<<

According to the best definition I've seen, you're not an optimist, Brad. You're a dreamer.

Correct definition:
"What is the difference between a realist and a dreamer? The realist thinks that someday a UFO will come down and hover over the UN building, and that the aliens will come out of the UFO and offer to share their technology and solve all our world's problems.

The dreamer thinks maybe we can get our act together and do it ourselves."

[It's a Russian joke.... Now, wasn't it Yoko Ono who said, dream we dream together is reality?]

[lise]

Actually Warren Buffett seems to me anything but "past it." Also, I thought the comments on General Motors bonds were interesting, and there sure were portfolio losses, derivatives and all. Where were the credit analysts, as Anne asked?

[no name]

Calculated Risk> "I hope not. I remain an optimist; I believe if we acknowledge our problems and address them in a rational manner, we can fix them."

quixote> According to the best definition I've seen, you're not an optimist, Brad. You're a dreamer.

Just a quibble: the statement quixote quoted was Calculated Risk's, not Brad's.

[weco]

From the Economist:

The American long bond

Resurrected?

May 5th 2005 | NEW YORK
From The Economist print edition

An old favourite may return

WHAT a difference a deficit makes. When America's Treasury stopped issuing 30-year bonds in October 2001, the optimists in government thought the federal budget was set for eternal surplus. Now, with the deficit projected to reach $427 billion this year and not much less next, the fiscal machismo is gone. It makes sense for the government to lock in today's interest rates—still low, although the Federal Reserve raised them again this week—for as long as possible. Where Europe led (both France and Britain are going for 50-year bonds), America looks disposed to follow.

On May 4th, the Treasury said that it would ask its private-sector advisory panel for their views on the matter. If these views are favourable—and they are expected to be—twice-yearly auctions of $20 billion-30 billion a year could begin as early as next February. The price of existing long bonds, buoyed by their scarcity, promptly fell.

Bringing back the 30-year will make institutional investors happy too. There is unmet demand for long-dated paper, says the Bond Market Association, an industry body. That is one reason why the yield curve has stayed pretty flat despite the Fed's repeated tightening of short-term rates. As Americans age, and actuaries and accountants want pension funds to match their assets and liabilities more closely, long-dated bonds from an unimpeachable issuer look just the ticket. The recent boom and bust in the equity market scared many.

Some argue that long-term investors' real enemy is not the mild mismatching of assets and liabilities but inflation, against which equities are a better hedge than long bonds. Inflation-linked bonds are one answer, but these typically yield little and, in America, are said to lack liquidity. So the 30-year bond will be welcomed back, but the search for other long-term investments will continue.

[anthony]

The problem is we may get the bust without the consolation of blame being assigned to the proper party. We no longer have the mass media of the 1930's.

[Keith]

I don't think it will take another depression to put the Democrats back in charge -- just some guts on their part.

[quixote]

no name: right you are. It's Calculated Risk who's a dreamer. Now, does that mean we can put Brad back in the "realist" class? (Personally, I think the smart money is on the aliens.)

[Emily Huska]

i hope this guy would give me money so i can be the best soccer player in the world. it would b the world to me if he gave me 200,00 or even a dollar i don't care just money so my dad can stop his worl and come help me become the best of the best. that would b the owuld to me and that would b the dream that i always wanted.

lots of hope that this goes around to alot of poeple in the owrld and it can get to this man so my dream brcomes true.