Beware of Ulterior Motives Behind Statements of Financial Experts

Often, during confusing economic times, people turn to icons in the investment world such as Warren Buffett and bond king Bill Gross for direction and blindly absorb the opinions of such men as their own without any critical analysis.

To allow a handful of prominent men to guide the direction of public debate regarding our global financial and monetary crisis is an extremely dangerous and counterproductive habit, for a great many of these men possess ulterior motives that drive the vast majority of their public actions and statements. Consider if you owned hundreds of millions of shares of a single stock (Warren Buffett reportedly owns more than 300 million shares of Wells Fargo (WFC) stock). Would you not be inclined to make statements that supported as rosy an outlook as possible for Wells Fargo if you were aware that your public statements held enough weight to move the stock higher?

When Bill Gross lobbied the U.S. Treasury to bail out Fannie Mae (FNM) and Freddie Mac (FRE), and publicly stated that letting these institutions collapse would be disastrous for all Americans, do you really think that he had the interests of his fellow Americans in mind? At the time of Mr. Gross’s very public pleas, 61% of Gross’s PIMCO holdings were tied-up in mortgage-backed securities that would have severely plummeted in value if Fannie Mae and Freddie Mac had declared insolvency (Source: Bloomberg, “US Must Buy Assets to Prevent Financial Tsunami, Gross Says”, 4 September 2008).

To further illustrate my point with an unrelated analogy, last year, legendary boxing trainer Angelo Dundee, a man that trained two of boxing’s all time greats, Muhammad Ali and Sugar Ray Leonard, predicted that Oscar De La Hoya would beat Manny Pacquiao because “Oscar’s the better fighter.” Even though the erosion of Oscar’s boxing skills in recent years was clearly apparent to all boxing fans (due to his advancing age in a young man’s sport) and Pacquiao was already considered by many to be the best pound for pound fighter in the world, Dundee’s considerable boxing judgment was clouded by the fact that he was part of the De La Hoya camp at the time. Based upon Dundee’s expert assessment of the fight, many boxing fans accordingly placed their bets in Las Vegas on De La Hoya. However, when the fight finally happened, Pacquiao so thoroughly dominated and battered De La Hoya for eight brutal rounds that De La Hoya decided to permanently retire from the fight game after the loss.

Returning to the investment world, let’s consider one final example where a conflict of interest likely provided the impetus for a very public statement. In a story reported by MarketWatch on May 2nd, journalist Alistair Barr wrote, “Buffett rejected the idea that U.S. taxpayers are paying more to fund bailouts of financial-services companies and the large economic stimulus package, noting that taxes in the U.S. haven’t been raised for many years…Ultimately, the bailouts will be paid for by a drop in the purchasing power of the U.S. dollar, [Buffett] said.”

Buffett’s simultaneous claims that Americans are not paying higher taxes and that the bailouts will be funded by devaluation of the U.S. dollar is an oxymoron. Despite Buffett’s claims, inflation is a significant tax in the sense that it reduces the real wealth of all citizens subjected to it. Inflation is merely a passive means for central bankers to tax their citizens and rob citizens of their wealth even though bankers duplicitously refuse to call it a tax.

Given Buffett’s outdated strategy of buy and hold in current stock markets and the special favorable terms he was able to negotiate for the purchase of Wells Fargo (WFC) and Goldman Sachs (GS) stock (unavailable to any other investor), government bailouts may serve his personal wealth strategy in the short-term, at the same time they continue to be very destructive to the real wealth of all American families. In the long term, in light of Buffett’s stubborn refusal to alter his buy and hold strategy, I strongly suspect that his inflexibility ultimately will cost him further significant losses.

In the end, one should never be led astray by the arguments of people labeled as “experts” without considering the existing numerous conflicts of interest that drive their public statements and actions.

Comments

[Davinci:]

Helicopter Ben did admit that printing money is a tax when asked by Ron Paul. The outrage that should come from that is a private company can tax people.

www.youtube.com/watch?...
time index 5:10

Got gold?

May 07 10:50 AM

[SebastianGE:]

Did you even read the article?

Where is the author stating that Buffet is/was wrong investing? He´s telling that, due to personal interests, Buffet statements to the press might not be objective as he is heavily invested on such companies he talks about sometimes.

C´mon, give it another try and read again.


On May 07 10:31 AM Ranger wrote:

> Buffett is wrong, but you are right? Just who are you exactly? Buffett
> could buy you and every dumbell on this board and not even miss the
> money. God, people like you crack me up.

May 07 10:52 AM

[Kristjan Ve...:]

If you had read my comment carefully, you would've noticed that I didn't imply he is wrong, but rather that he is not infallible. Buffet, as the richest investor in the world, who is purportedly holding the pulse of the economy, is a trustworthy person due to his previous calls on the economy and specific companies and I respect him. But I don't think we should praise everything he says.

BTW, if you get cracked up so easily, maybe you should go to gym (relieve your anger) or see a doctor. Whatever helps best.

On May 07 10:31 AM Ranger wrote:

> Buffett is wrong, but you are right? Just who are you exactly? Buffett
> could buy you and every dumbell on this board and not even miss the
> money. God, people like you crack me up.

May 07 11:07 AM

[Kristjan Ve...:]

If you had read my comment carefully, you would've noticed that I didn't imply he is wrong, but rather that he is not infallible. Buffet, as the richest investor in the world, who is purportedly holding the pulse of the economy, is a trustworthy person due to his previous calls on the economy and specific companies and I respect him. But I don't think we should praise everything he says.

BTW, if you get cracked up so easily, maybe you should go to gym (relieve your anger) or see a doctor. Whatever helps best.

On May 07 10:31 AM Ranger wrote:

> Buffett is wrong, but you are right? Just who are you exactly? Buffett
> could buy you and every dumbell on this board and not even miss the
> money. God, people like you crack me up.

May 07 11:07 AM

[captmanning:]

Mr. Kim's caution to do our own 'due diligence' instead of blindly following a guru is well-taken and long-standing among reputable advisors. However, any suggestion that Warren Buffett is a pump-and-dump day trader touting his own mistakes is ludicrous. Buffett has long advised buying when others are panicking and selling out.
Sounds like good advice, better certainly than what passes for "expert" opinion on the screamer cable shows by dime-a-dozen 20-something MBAs playing with someone else's money.

I agree with yodoc about cash is trash, but only because I have a solid guaranteed income. And the market is currently at an attractive level than many are sorry they missed last time. I like my money to work, not sit for bankers to play with. I'm old enough to say I've seen it before and do not expect the eventual outcome will be much different than smart careful people will profit and dumb plungers will go broke

May 07 11:15 AM

[Jimbo:]

Buffet is self serving in many other ways as well. He opposes killing the inheritance tax. He has made mega bucks buying enterprises where a single owner died without adequate estate life insurance. The Buffalo News is only one example. Berkshire-Hathaway controls an insurance company in Seattle (Safeco) that specializes in(GUESS!) life insurance to cover estate taxes. Buffet is ALWAYS talking his book!!

May 07 11:43 AM

[notsosmart:]

now if you are really smart(unlike me & a lot of dumb-dumbs) you wouls pay attention to no one.all have an agenda.the talking heads need ratings& are the cheapest form of tv & the pols are only really interested in their reelection. if along the way the country or the middleclass happens to benefit its only luck.this whole wall st is ponzi & casino.the paper issued has ups & downs,ins & outs,rights & lefts & combinations to screw all.the lack of ethics & transparancy make it an insider game & even then some of their own getscrewed.trust no one think for yourself. made-off is a piker compared to all the financial scoundrels that should be in jail.

May 07 12:04 PM

[yodoc:]

At some point we will start to see inflation, commodities will be going up (and for us the kicker is oil), and when the inflation is intense enough (even if it's secondary to a crash in the $), then interest rates will rise. This should help support the $, but cause a dump in equities, at which point we might hear " see, it was a bear market rally (up to 14,000 maybe)". As long as the $ is not truly crashing, they'll leave rates low. If purchasing power of the $ erodes, those overpriced houses will get to correct pricing faster, american products will be cheaper and forex of multinationals will be more positive and the value of debt will be worth less. The loser would be China, but my guess is they have bought a major boatload of commodities, and perhaps this is why oil is so strong. Many commodities contracts never get filled, just traded. The timing is right for a rise in oil if the expected # of april longs are not getting rolled over. It would explain the contango back in february.
Off topic , check the weekly chart on GLD, is it a rare inverse (upside down) head and shoulders consolidation? Pattern starts in March of 08, target would be 1500 approx.

May 07 12:10 PM

[Robichard:]

Thankyou for your simple yet profound article. You are RIGHT ON !
Always question the SOURCE of all information.

May 07 12:15 PM

[sheeple123jump:]

....exactly.... right on target.....
its important to question everyone's point of view and examine the corruption of the system......the financial investing game,is controlled by the new world order elite controllers....and the public citizen is not in control.... following along trying to play and survive in this rigged game. which is getting more devious,more dishonest,more corrupt,more manipulated, and more all-encompassing as it expands into a whole world economic new world order..... the public citizen may be little more than cannon fodder in the economic war among the elite controllers.crashing the US economy may be the intended plan in order to move their elite agenda forward. Trust no one.but finding someone who understands the game and is honest about explaining it is a great benefit.
thanks J.S.

May 07 01:19 PM

[Econ 101:]

Good article. But did Angelo Dundee bet on De La Hoya or Pacquio?

May 07 01:46 PM

[Rich Vermil...:]

Excellent article...once again. This quality of analysis and commentary is why I subscribed to follow your posts. Keep up the good work!

May 07 01:53 PM

[BerkeleyBob:]

Inflation as a hidden tax? Hmm. Not a conventional definition, but you don't have to be as self-deluded as Greenspan to recognize that inflation is pernicious and destroys value, as well as making life difficult for widows and orphans who depend on fixed income or even US bonds (although I am not sure what the demographics are for widows and orphans). I would disagree with Mr. Buffett, while respecting his track record, in his statement that taxes have not increased. There may have been some tax breaks at the federal level, but state and local taxes along with their fellow travelers, user fees, traffic cites, parcel tax, etc. etc. have been increasing. I speak as a Californian--we have something of our own fiscal meltdown going.

May 07 02:11 PM

[obewon:]

<b>@ Ranger:</b>

You are shooting the messenger!

The author is merely stating a few keen observations, based on factual data.

Buffett is one of the brightest, most canny investors in the modern era, but he also makes mistakes. Two examples here:

1) Last year, he lost tens of billions in his own personal account
2) Last November, he recommended buying stocks!!!

While I admire his style, I would never come to the conclusions that you did.
Yeah, Buffett could give each of us who read commentaries on SeekingAlpha $1 million, and never even notice the money was gone... but that's not the point.

<b>The Fundamental Message Here:</b>
In the event that you "missed" the author's main point, it is this:
"<i>we should never accept, at face value, the market-related comments of pundits such as Bill Gross (e.g. PPIP is a Win-Win-Win for everybody!!!), Buffett, & their ilk... they all have ulterior motives!</i>


On May 07 10:31 AM Ranger wrote:

> Buffett is wrong, but you are right? Just who are you exactly? Buffett
> could buy you and every dumbell on this board and not even miss the
> money. God, people like you crack me up.

May 07 02:41 PM

[Berninvestor:]

Thank you J.S. Kim for your great and thoughtful article. I just added you to my "follow" list and look forward to more of your very helpful articles.

May 07 03:23 PM

[AndrewBaker:]

Well, a refreshing and insightful comment on the real world even where respected gurus' comments are thoughtfully dissected. Of course Buffet and Gross and nearly all other investment managers with a vested interest will tell us how good it is or how it should be where their own investments and interests are concerned, and will do so in a way that protects their own interests.

This is one reason why we are having an unsubstantiable stock market rally, which today perhaps may be over (?) Self-interested people be they politicans, investment managers, CEOs, or just plain media commentators, are telling us their own version of what is happening, and their own version fails to incorporate too much of the truth lest it results in a little less for them of what they want, be it money, glory, respect or just plain recognician.

Let's get the unbiaised truth out there, then we can start the recovery for real.

May 07 03:29 PM

[I am not a ...:]

Indeed,I have stopped watching the talking heads and headed for the bare bones basics to seek the "unbiased truth." And as you say once the truth is realised 'by those who truly invest' the recovery will begin in ernest.



On May 07 03:29 PM AndrewBaker wrote:

> Well, a refreshing and insightful comment on the real world even
> where respected gurus' comments are thoughtfully dissected. Of course
> Buffet and Gross and nearly all other investment managers with a
> vested interest will tell us how good it is or how it should be where
> their own investments and interests are concerned, and will do so
> in a way that protects their own interests.
>
> This is one reason why we are having an unsubstantiable stock market
> rally, which today perhaps may be over (?) Self-interested people
> be they politicans, investment managers, CEOs, or just plain media
> commentators, are telling us their own version of what is happening,
> and their own version fails to incorporate too much of the truth
> lest it results in a little less for them of what they want, be it
> money, glory, respect or just plain recognician.
>
> Let's get the unbiaised truth out there, then we can start the recovery
> for real.

May 07 05:48 PM

[Obamitall:]

You missed the point entirely. Buffet has sold out to politics and greed for his own benefit. I've seen this with him for some time now. His appearances on CNBC are self serving.
Having money does not make the man infallible or superior.


On May 07 10:31 AM Ranger wrote:

> Buffett is wrong, but you are right? Just who are you exactly? Buffett
> could buy you and every dumbell on this board and not even miss the
> money. God, people like you crack me up.

May 08 05:23 AM

[Erick Tippett:]

Keynes himself admitted that inflation robs the wealth of nations.
Flocking to "gurus" as indulged by the public is another confirma-
tion of the accuracy in Adolph Hitler's comment "it is a wonderful
thing for governments that people don't think!"

EDT
Chicago, Illinois

May 09 12:11 AM

[Candor7:]

The interesting thing about this "recovery" with so much TARP monety bouncing around is that there is a class of investors and associated government policy makers at the Fed who want to "MARKET" the recovery.

Using the facts allows one to separate shite from shinola. Its easy to confuse marketing with sound strategy. Mr. Buffett , in addition to being an investor has also become a "marketer" of this recovery, and makes public statements to shape it. The secret in taking away the good that Buffett offers us is simply to read his words, and then examine his action. His action is what we can take as the real sound advice,and you will notice that his action is not always congruent with his own marketing statements.

Its the same with the "stress test" which is essentially a marketing strartegy designed to entice private capital back into the market.Mr. Kim says to look at the facts and shows us his approach, and I believe he is very good in separating good advice from marketing
statements. Marketing statements are designed to impact sentiment and if you find yourself swinging with a guru and your emotional quotient is high, born again enthusiasm may really hurt the bottom line.

This emotional dynamic , and its objective balance are played out right here in this comment thread. LOL. Good investing requires a very balanced mix of these two during these perilous times. Enthusiasm is good, but better look twice or thrice before you leap
to follow the guru.

May 09 10:51 AM