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  • Buffett's PR Disaster [View article]
    I guess I must have watched the C-SPAN feed from an alternate universe.

    Here's what I heard Buffett say:

    1. You have to change the incentives and the leverage if you want to change the system.

    2. There must be a big downside to risk as well as a big upside. This downside should fall the heaviest on the CEO (and spouse) followed by the Board of Directors (without insurance.) They must become the Chief Risk Officers.

    3. There is a legitimate role for derivatives in hedging risk. But, in these "vanilla" derivatives, there is little profit - because of competition. They're not hard to develop and understand. This part of the business is proper and needed speculation. So financial institutions develop more complex (and harder to understand) derivatives - because they can charge more for them. This is gambling, and poses a major threat to the financial system. Dating back to 1982, he thinks the current system permits such gambling with little or no margin required.

    4. He thinks the existing derivatives on most firms books are impossible to understand and manage. He couldn't do it.

    5. The root cause of the crisis was the belief that housing prices would not all drop in a coordinated manner. The size of the crisis, which threatened the worldwide economic system, was a function of the amount of leverage that had been gambled, based on this belief.

    6. If permitted, and especially if a lot of cheap money is available, most humans will gamble under such circumstances. There must be controls to limit this. Developing them is a very tough job.

    7. Thus his beliefs that risks must fall on those doing the gambling, and leverage must be limited, especially where government bailout money is involved.

    With respect to Moody's:

    1. They made the same bad assumptions about the housing market as did the bulk of the system. They performed poorly. They were not alone, or unique.

    2. When evidence developed that the ratings models were off, Moody's "tweaked" the models. They should have used a meat ax.

    3. There is a need for a ratings system. Most "customers" do not have the capability to do their own risk analyses - especially on complex products.

    4. He did not rely on Moody's (& S&P) for risk analysis. However, he had to have their ratings, and to pay whatever they asked. This was, in effect or actual practice, mandated. Ironically, if more ratings were accepted by the system, this might trigger a race to the bottom based on lower prices and lesser quality ratings. Things could get worse.

    5. He relies on the management of the company to correctly manage their activities. If he doesn't continue to trust them, he exits the stock - e.g. Freddie. He can't dig into how they manage them - citing Moody's, P&G, J&J, etc.

    6. The future of most states and municipalities depends upon what assumption you make about the federal government intervening when they crash.

    As for my negative views of his testimony, Buffett continued his usual practice of criticizing the action, not the individual. He refused to pile on Moody's to the exclusion of other involved parties. I thought the weakest part of his testimony concerned the shareholder's role in overseeing the management of corporations. He basically dodged any responsibility in this area - not to his credit. From Snowball, we know that Buffett avoids conflict.

    I thought Buffett took to heart the gentle criticism of Thomas that he had a responsibility to speak out from his bully pulpit before the current financial reform legislation was completed. It would be very hard to change things thereafter. I thought he tried to do so - as outlined above.

    I don't consider the foregoing the actions of of a evasive, disingenuous, bumbling buffoon .....
    Jun 3 01:48 PM | 38 Likes Like |Link to Comment
  • Why We See Gold Going Lower Long-Term [View article]
    My experience with Morningstar is that they have little clue about commodities. During the previous oil run-up, they kept saying it was too high and oil stocks were overvalued. They kept bringing in mouthpieces such as Bill Miller to tout about Citigroup and bash commodity stocks. When they finally capitulated in 2008 and jacked up their long term oil price estimate, oil crashed too afterwards.

    This time around, they seem to have accepted high oil prices, but it seems they have yet to accept the run up in gold. Longs should be worried when Morningstar suddenly jumped on the gold bull wagon.
    Apr 22 10:57 AM | 36 Likes Like |Link to Comment
  • Banning Derivatives and Other Such Foolishness [View article]
    CDS by nature is not evil. It's just like your home insurance.

    But the current implementation of CDS is like letting other people buy 10 insurance policies of YOUR property. Needless to say, they have a very strong incentive to see your house going up in flames.
    Nov 16 01:05 PM | 27 Likes Like |Link to Comment
  • What Happened To 'Peak Oil'? [View article]
    If it were not for the EPA, the crowd would have pumped the US dry at $15 oil.
    Jul 7 03:40 PM | 26 Likes Like |Link to Comment
  • Chesapeake Energy: Ready To Double [View article]
    Anyone who pumps UNG is either a complete moron or a vicious charlatan.

    UNG is structurally flawed and its terminal value is zero, regardless what happens with natural gas price.
    Apr 22 05:45 AM | 25 Likes Like |Link to Comment
  • Buffett's PR Disaster [View article]
    Buffett said very clearly that he doesn't use ratings.

    I think that's a fairly devastating comment about the usefulness of rating agencies.
    Jun 3 03:00 PM | 20 Likes Like |Link to Comment
  • Thoughts on the World's 10 Most Admired Companies Part 1 [View article]
    A company trading at forward P/E of 12 and growing at 50% is overvalued?

    A company trading at forward P/E of 14 and growing at 40% is overpriced?

    A company trading at forward P/E of 9 with virtually no growth is dirt cheap?

    Please, show us your detailed future growth assumptions in your analysis and tell us why.
    Apr 10 01:43 PM | 18 Likes Like |Link to Comment
  • Rep. Paul Ryan releases a new deficit reduction proposal that claims to cut $5.8T in spending over the next decade and includes major changes to Medicare and Medicaid. These problems won't get fixed because (choose one): A. they're unworkable; or B. politicians and voters don't have the stomach for such deep cuts.  [View news story]
    Let's have a shutdown first and see how much people complain, then we will have a better picture about whether any of the entitlements can be cut at all.
    Apr 5 06:23 PM | 16 Likes Like |Link to Comment
  • Election Results: Big Win for GOP, Potential Loss for the Economy [View article]
    47% of seniors voted for the Tea Party according to CNN.

    These folks want to balance the budget at any cost, so let's start cutting medicare and social security first, the biggest culprit of our structural deficit.

    If they take their sacrifice in stride, then the Tea Party is for real.

    But if we get their howling instead, then they are nothing but a bunch of Nimby hypocrites.
    Nov 3 11:28 AM | 15 Likes Like |Link to Comment
  • 3 Indicators That Signaled The 2007 Top: They're Back [View article]
    Your number 2 reason is the biggest nonsense:

    Copper dropped 50% from 1982 to 1987, S&P went up 3 times;

    Copper dropped 60% from 1994 to 1999, S&P again went up 3 times.

    The positive correlation between copper and S&P between 2003 and 2007 was an exception.
    Sep 10 03:20 PM | 14 Likes Like |Link to Comment
  • Gartner Indicates That MSFT May Be In Some Serious Trouble [View article]
    I would not pay much attention to 5 years forecast from these guys.

    You could check their past predictions and find out how they suck.
    Apr 6 05:30 AM | 14 Likes Like |Link to Comment
  • Republican Congressman Ron Paul plans to hold a hearing in May on the Fed's emergency loans from its discount window to non-U.S. banks. The "staggering amount" lent to these banks "provided no benefit to American taxpayers, the American economy, or even directly to American banks," Paul says.  [View news story]
    American footprints are already all over the world. USD is world's reserve currency (which we are abusing this position tremendously at moment). More than half of S&P 500's profits come from foreign countries. The Fed can't deny reality and act like scared ostriches.
    Apr 3 01:29 PM | 14 Likes Like |Link to Comment
  • Bernanke Testimony Indicates Fed Still in Denial [View article]
    Ben's message is clear: if the economy gets weaker, he will be flooding the system with money. One possible way is to induce banks to lend out the $1.3 trillion cash they hoarded.
    Jun 9 02:00 PM | 14 Likes Like |Link to Comment
  • The Growing Threat To Canada's Oil Sands Boom [View article]
    The biggest threat to oil sand boom is a falling oil price.

    All others are minor issues.
    Mar 12 01:29 PM | 12 Likes Like |Link to Comment
  • Here's What Happened The Last Time The Fed Owned All Outstanding Treasuries [View article]
    Here are some numbers for Germany around early 1920s:

    National debt at 420% of GDP;

    Loss of 30% population and territory, loss of general sovereignty;

    War reparation payments multiple times its national GDP;

    Benefits for 11 million war veterans in a population of 67 million;

    Rebellions and uprisings by both extreme left and right


    The final push toward hyperinflation was the occupation of Ruhr region by the Entente. In case you don't know, the Ruhr was then the German industrial core and contributed more than 30% of its GDP.


    You think the US is gonna fall as hard as the Germans then?
    Apr 5 02:32 AM | 12 Likes Like |Link to Comment
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