Very good Rap today:
Buffett Overweights in Low-Fat S&Ps: Speaking of expectations, mankind's greatest stock market investor, Warren Buffett, has been opining that they should be set to 7% or so for the next decade, as sort of a best case for equities. While people love to listen to Warren when he says things they want to hear, they tend to ignore him when he says things they don't want to hear. There was a lot of coverage about what went on at the Berkshire Hathaway(BRK.A:NYSE) annual meeting recently, but one item which slipped through the cracks was, fortunately, picked up by the good people at Grant's Interest Rate Observer . The latest issue states: "At the Berkshire Hathaway annual meeting last weekend, Warren Buffett disclosed that Berkshire bought S&P 500 put options on more than one occasion in recent years. In clinically specific detail, the Sage of Omaha said Berkshire holds an option-related investment on which it stands to gain $600 million if the S&P closes below 1,150 on June 3." So, Warren Buffett is putting money up on his bearish view. In this case, it sounds as though he sold calls, but I don't think the actual mechanism is so important, and I think people at home should certainly not sell calls as a way to express a bearish view. Buying puts is one thing, but selling calls is a totally different matter. That's a subject for another day.
'Aftermath' Spoken Here: On a subject that I have often mentioned -- looking to Japan as a postbubble reference point -- I always receive emails from people who ask me why I don't understand that the U.S. isn't Japan. Of course I understand that there are differences between us and Japan, and there are differences between our banking system now and in the 1930s. But the similarity is that after previous bubbles, the economic damage lasted for a very long time. That happened in Japan, and that happened here in the 1930s, and yet after the bubble we just had, people think that we are going to get away with a recession that (a) no one saw coming, and (b) was so mild that it hardly worried anyone, and ended in the blink of an eye. That is not the way I expect things to happen.
Munger Votes for Precedent of the United States: Here's what Charlie Munger, Buffett's partner, had to say about this at the same Berkshire Hathaway meeting: "What's interesting about Japan [he said] is that a major modern economy could have negative returns over 13 years and that it would occur while interest rates are declining, with huge fiscal stimulus. . . . Can something as bad as that happen here? Is it conceivable? I think the answer is yes." He added, "I think the smartest thing a person can do is dampen their expectations for both the overall market and Berkshire stock." And, of course, I would amplify that by saying "and our economy, as well."
So, there is a very wise man who, again, people listen to when he says things they want to hear, but shut out comments like the above. Ladies and gentlemen, it's important to be aware of what can go wrong. A tremendous amount of unsavory and destructive policies were pursued during the mania. I chronicled them at the time, and I talk about them now as they are being brought into the open. People need to really think about the implications for their lives, rather than just believe the good times are here again simply because economists/Wall Street talking heads/the Fed want them to believe it's so.
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