Berkshire Hathaway Sees Opportunities in Europe and Bond Insurance

Investors hang on every word uttered by Warren Buffett, but it was his partner Charlie Munger who offered the most pungent comments on the state of many things economic at Berkshire Hathaway’s annual shareholder meeting last weekend.

According to the Financial Times’ coverage of the event, Buffett said that many financial behemoths had grown “almost too big to manage effectively from a risk standpoint.”

Munger was a bit more direct:

It’s a crazy culture of greed and overreaching and overconfidence in trading algorithms. It’s quite counterproductive for the country. These institutions are too big to fail.

Buffett gave the Federal Reserve credit for its role in brokering the rescue of Bear Stearns. Defending the role of government intervention in times of crisis, Munger jabbed at Alan Greenspan, the former Fed chairman, who he said had “overdosed on Ayn Rand. If it happened on the free market, it had to be all right. The world would work better.”

Buffett did have a couple of zingers of his own, however:

“Capitalism without failure is like Christianity without hell,” (courtesy AP) and

“Your children will live in a better country than you, even if a few idiots run it in the meantime.” (courtesy Dealbreaker.)

Buffett also praised the early successes of Berkshire’s fledgling bond insurer, which he said generated $400m in premiums during the first quarter, the FT reported. Many of the 278 contracts that the unit wrote were for clients who already had bond insurance from another triple A rated company.

They’re paying us a [higher] fee to write insurance that will only be paid if the principle and insurer didn’t pay.

It tells you something about the meaning of triple A in the bond insurance field.

And the Sage of Omaha, unlike President George Bush, isn’t waiting for the National Bureau of Economic Research to retroactively tell us we were officially in a recession:

I would say that we’re in a recession clearly.

That may be one reason why Buffett and Munger are looking to Europe for investments, especially Germany, MarketWatch reports.

“We would like more family owners of Germany businesses who, when they feel some need to monetize their business, to think of Berkshire Hathaway,” Buffett said. “If they care about their business we are their best call.”

Another factor is Berkshire’s view that the dollar is likely to continue to decline against European currencies, according to The Wall Street Journal’s Marketbeat blog:

We are happy to invest in businesses that earn their money in the euro, or in companies that derive their earnings in Germany, or from the sterling in the U.K. because I don’t have a feeling that those currencies are going to depreciate in a big way against the dollar.

Comments

[JeffMontgomery]

Munger:
>These institutions are too big to fail
>Munger jabbed at Alan Greenspan, the former Fed chairman, who he said had “overdosed on Ayn Rand

It's a shame to have to see Rand's Atlas Shrugged being played out in real life, as anything regarded as bad is blamed on freedom and individualism, and measures are advocated which will make it worse, and so on into a downward spiral. Any failures today are precipitated and made worse by the very intervention that is being advocated. To blame markets is like blaming water for being poured from a bucket. Apparently Rand had more insight than most commentators today.

The solution is to let those who make bad decisions fail, and fail sooner and harder. It does nobody a service to prolong the existence of banks that make poor policy decisions or encourage consumers who make poor financial choices; it simply promotes failure and makes it possible and more likely to happen again. We should be promoting ruthless justice and the right way to invest, not encouraging failure.

[Jim Brown]

Charlie Munger obviously did not read Ayn Rand! It is ludicrous to claim that Alan Greenspan is an actual advocate of the free market: he ran the Fed, which fixes the price of debt every day. Second, anyone who knows Greenspan and Ayn Rand know that he broke with her views long ago. Charlie should catch up on his reading.