Berkshire's Derivatives Exposure: Whitney Tilson on FastMoney

Comments

[Merzbow:]

There's never been a 20-year time period in which the markets have been down even 1%? Pure bullcrap, the market didn't reach its 1929 high again until the mid-1950s. What kind of morons do they hire for this show?

2008 Nov 26 01:14 AM

[Jim McCarney:]

Merzbow is correct in that it took until to mid 1950's for the market to recover from the 1929 highs. So Tilson's statement is wrong.

The markets, and especially the bond markets, are pricing in the worst recession since the Great Depression. I believe this to be the case, but I don't believe that we are looking at a 10 year period of depression nor an approximately 7 year period of the threat of a murderous and deranged dictator gaining sovereignty over all of Europe and much of Africa and Asia. That was the case in the 1930's and much of the 1940's. Don't forget that the general consensus in 1942 was that Hilter seemed unstoppable and that the US was ill equipped to challenge Germany. (The majority of our aritillery in the late 1930's was designed to be drawn by horse, for example.)


Statistically, the occurences of rolling 20 year periods with negative returns occurred less than 1% of the time. Assuming Tilson is correct that Berkshire would break even if the market returned 3.5% annually over the next 10 years or so, that is a bet worth taking.

Jeremy Grantham, a long-time bear, correctly predicted 10 years ago that equity returns for the next 10 years would be flat. Today, he says that are in a position where we are likely to have 7% to 8% average annual returns for equities over the next 10 years. For the long term, 10 to 20 years, I'll bet with Buffet and Grantham.

2008 Dec 02 12:17 PM

[Jim McCarney:]

To correct my post: Tilson said that Berkshire doesnt have to pay out anything if the market returns an annual average 3% to 4% return.

2008 Dec 02 12:21 PM