Buffett Bets on America

Warren Buffett cuts to the heart of the matter. Despite current troubles, he's sure the economy is heading for a recovery, and no doubt he's right. However, it's too bad for America that Obama is the president in charge during these rough times.

Buffett to taxpayers: Get over your anger

Bloomberg News

Taxpayer anger against President Barack Obama and Congress is counterproductive because policy makers took measures including deficit spending to stimulate the economy, billionaire investor Warren Buffett told CNBC.

“Sentiment has turned very sour in the last three or four or five months,” the chairman and CEO of Omaha-based Berkshire Hathaway Inc. said in an interview broadcast Thursday.

“I hope we get over it pretty soon, because it’s not productive,’’ Buffett said. “We will come back regardless of how people feel about Washington, but it is not helpful to have people as unhappy as they are about what’s going on in Washington.”

More than three-quarters of U.S. investors view Obama as anti-business and are pessimistic about his policies, a Bloomberg survey this month indicated.

The U.S. unemployment rate is 9.6 percent, even after an $814 billion stimulus measure enacted last year and other government actions.

The Federal Reserve has kept the benchmark overnight lending rate target close to zero and said this week that it was prepared to ease policy further.

“The truth is we’re running a federal deficit that’s 9 percent of gross domestic product,” Buffett said. “That’s stimulative as all get out. It’s more stimulative than any policy we’ve followed since World War II.”

Buffett also said that the economy remains in a recession, by his definition, because most people and businesses still aren’t doing as well as they were before the financial crisis.

Buffett’s assessment of the economy contradicts the view of experts who announced this week that the recession officially ended in June 2009.

Buffett said he uses a common sense standard to evaluate the economy. Buffett gets insight into the health of the economy through the performance of Berkshire’s many subsidiaries.

The Next New Era

As usual, the government is doing all it can to go down the wrong road. However, when the government backs off and decides to coast a little, something good will begin to happen. That is how things work. Till then, we have to fasten our seatbelts and hang on.

Lessons of a Dow Decade

Capital misallocation is usually a fallout of bad government policy

A year ago yesterday, the world almost ended. The stock market was in free fall, with the Dow Jones Industrial Average bottoming out at 6547, down from its Oct. 9, 2007 peak of 14164. Financials were in a death spiral and there was even talk of nationalization. Citigroup hit $1.05, GE traded at $7.41 and golden Goldman Sachs was given away at $73.95. A bear market extraordinaire.

Contrast this with 10 years ago today, when the dot-com-laden NASDAQ peaked at 5048. Then we had the opposite mentality—companies like Pets.com were going to fundamentally reshape the economy in the new millennium through a nirvana of spectacular growth and well being. Or something like that. A bull run extraordinaire.

No one would blame you for thinking the market is a textbook delusional-paranoid-schizophrenic, not knowing the difference between the real and unreal. And you'd be right. But you'd miss a valuable lesson. Misallocation of capital is everywhere and anywhere a fallout of bad government policy. The South Sea Company, a government sponsored entity with a monopoly on trade, caused the South Sea Bubble in 1720.

The late '90s Internet love fest was crazy enough, driven by former FCC Chairman Reed Hundt's misguided telecom reform that had the effect of keeping data rates artificially high. This created a gold rush to install fiber and build applications that didn't make economic sense (though electronic commerce, online banking, as well as wireless and broadband deployment would eventually prove productive over the next decade). Bad policy meant capital got overallocated and too quickly, as momentum mutual funds (momos) and day traders furiously drove up stock prices of every company with dot-com in its name for no fundamental reasons. Wall Street trading was broken.

Then, adding insult to injury, Alan Greenspan and the Federal Reserve flooded the system with money, fearing that banks would face a run brought on by the Y2K problem. The problem and the run never happened. The money ended up in the market. Mopping up that money burst the bubble. The market bottomed out on Oct. 9, 2002, when the Nasdaq hit 1114.

And the world after 9/11? Unfortunately, the accounting scandals at Enron, WorldCom and elsewhere brought us the costly Sarbanes-Oxley law, adding a complex regulatory burden so that many companies fear going public. We also got a decoupling of research from investment banking because of an alleged conflict of interest, and a Federal Reserve whose nightmare fears of deflation ushered in a long era of cheap credit.

.Instead of finishing what the dot-com era started to deliver—a productive, wealth-producing economy—capital was seduced into the financial lair of private equity and real-estate mortgages. Trillions were pumped into unneeded housing stock. Fannie and Freddie fanned the flames, and then fizzled and failed. And leveraged buyouts reigned. Even in 2007, one Blackstone private equity fund raised almost as much money as all of the venture capital industry.

And now? The bear market of a year ago may have ended because of the Geithner Plan, Treasury stress tests and TARP money injected onto bank balance sheets. You can go with that narrative if you'd like. Or maybe it was a change in the mark-to-market rules so banks no longer had to write down their toxic subprime loans. But the reality is that on March 18, 2009, Ben Bernanke and the Federal Reserve began their $1.2 trillion quantitative easing, buying Treasurys and mortgages and pumping dollars into a deleveraging economy. Hair of the dog. More cheap credit that again ended up in the market, helping banks refinance.

Today, we are still left with almost no initial public offerings. While private equity fund-raising was down 68% in 2009 to $96 billion, venture capital barely raised $13 billion.

Capital gains taxes are set to return to 20% on Jan. 1, 2011. And worse, investing is as uncertain as ever. No one wants to fund health care, medical devices or even much biotech if they can't figure out how they are going to be paid via reimbursements from ObamaCare. Energy investing is also a mess. And while "green" investing is booming, with few exceptions that is about efficiency rather than productivity. There's a big difference: You can make the Post Office more efficient while email makes us more productive and wealthier.

Big regulated oligopolists control our communications infrastructure. Startups are nowhere to be found. Few are willing to take the risk of true venture investing.

It's been 10 long years since the economy has created real wealth, as opposed to easy-credit induced real-estate or paper wealth. Amidst all the current confusion over health care and tax rates and energy and banking reforms, maybe it's time that the market transitions back to investments that drive productivity and increase living standards rather than just paper profits.

I'm not saying the market should transition or it ought to—you don't tell the market what to do. As we know from one and 10 years ago, the market works in weird ways and makes these transitions in the fog of something else, in this case it's the Fed's life support that is misallocating capital. When that ends, look for new eras to begin.

Haiti -- Where Prayer Replaces Preparation

150,000 Haiti quake victims buried, gov't says

PORT-AU-PRINCE, Haiti – The truckers filling Haiti's mass graves with bodies reported ever higher numbers: More than 150,000 quake victims have been buried by the government, an official said Sunday.

That doesn't count those still under the debris, carried off by relatives or killed in the outlying quake zone.

"Nobody knows how many bodies are buried in the rubble — 200,000? 300,000? Who knows the overall death toll?" said the official, Communications Minister Marie-Laurence Jocelyn Lassegue.

The hapless government has no basis for determining the number of people killed by the earthquake. Worse, the government seems to lack the understanding of how Haiti's own lack of safety standards contribued to the massive death toll.

When an earthquake of slightly higher magnitude hit northern California in 1989 -- postponing the World Series -- less than 70 people were killed. Wny? American building codes. The building codes mandated safety standards that made the difference.

Dealing with the living, meanwhile, a global army of aid workers was getting more food into people's hands, but acknowledged falling short. "We wish we could do more, quicker," said U.N. World Food Program chief Josette Sheeran, visiting Port-au-Prince.

In the Cite Soleil slum, U.S. soldiers and Brazilian U.N. peacekeeping troops distributed food. Lunie Marcelin, 57, said the handouts will help her and six grown children "but it is not enough. We need more."

Where is the help promised by the long list of grandstanding nations? Only a handful have actually delivered.

International experts searched for sites to erect tent cities for quake refugees on the capital's outskirts, but such short-term solutions were still weeks away, said the International Organization for Migration, an intergovernmental agency.

"We also need tents. There is a shortage of tents," said Vincent Houver, the Geneva-based agency's chief of mission in Haiti. Their Port-au-Prince warehouse has 10,000 family-size tents, but some 100,000 are needed, he said. The organization has appealed for $30 million for that and other needs, and has received two-thirds of that so far.

Haiti is about to become the tent capital of the world. Given its well demonstrated inability to develop housing, Haiti will become a nation with a permanent set of tent-dwellers. Undoubtedly people moving into tents will remain in them until they are nothing but tatters.

One who wouldn't die in Port-au-Prince was Wismond Exantus, who was extricated from the rubble Saturday. He spoke with the AP from his cot in a French field hospital on Sunday, saying the first thing he wanted to do was find a church to give thanks.

He spent the 11 days buried in the ruins of a hotel grocery store praying, reciting psalms and sleeping, he said. "I wasn't afraid because I knew they were searching and would come for me," he said.

It seems Haitians believe prayer is behind rescue missions conducted by humans. It would add to Wismond Exantus's story if we knew who had rescued him.

With such rescues now increasingly unlikely, Haiti's government has declared an end to search operations for the living, shifting the focus more than ever to caring for the thousands surviving in squalid, makeshift camps.

The World Food Program had delivered about 2 million meals to the needy on Friday, up from 1.2 million on Thursday, Sheeran said. But she acknowledged that much more was needed.

"This is the most complex operation WFP has ever launched," she said. "Food distribution is very difficult," said Dr. Henry Ariel of the Haitian Health Ministry. "The food doesn't reach up to now everyone."

The scene Sunday at Cite Soleil, the capital's largest and most notorious slum, showed the need.

Thousands of men, women and children lined up and waited peacefully for their turn as the American and Brazilian troops handed out aid — the Americans gave ready-to-eat meals, high-energy biscuits and bottled water, the Brazilians passed out small bags holding uncooked beans, salt, sugar and sardines, as well as water.

Americans and Brazilians to the rescue. Any other nations heard from?

The need for medical care, especially surgery, postoperative care and drugs, still overwhelmed the help available, aid agencies reported. In the isolated southern port city of Jacmel alone, about 100 patients needed surgery as of Friday, the U.N. reported. Medical personnel were there, but not the necessary surgery supplies.

In Port-au-Prince, meanwhile, the aid group Doctors Without Borders said its inflatable hospital — six large inflatable tents flown in from France — was preparing for its first operations.

At the Choscal hospital in Cite Soleil, the operating room has been busy with obstetric cases and some machete and gunshot wounds, Doctors Without Borders said, as looting and violence sputtered on among the ruins. The numbers of young men scavenging for goods seemed lower, however, since most shops were already entirely cleaned out.

Obstetric cases? Babies? Machete and gunshot wounds? None a result of the earthquake. More evidence of a country in a state of anarchy. Is there any chance Haiti will recover from this catastrophe? Yes, -- IF -- the US and/or the UN takes control of the country and forces the changes needed to create a nation with a rising standard of living. But it will take FORCE. Not hand-holding or sensitivity. If prosperity is to arrive, then Haiti's traditions have to go. A new national mindset has to arrive. Otherwise, Haitians will live in misery until the next catastrophe makes life even worse.

The world's nations have pledged some $1 billion in emergency aid to Haiti. Organizers of Friday night's "Hope for Haiti Now" international telethon reported the event raised $57 million, with more pledges from ordinary people still coming in.