Markets Have a Long Way to Go

Includes: AIG, BRK.A, BRK.B
by: Craig Brown

Let me give you one good bit of news. In certain California markets the real estate prices, down 41%, seem to be stabilizing and the inventory levels are down significantly, from roughly 16 months to 6. California was one of the leading markets in the demise and the prospect that it is perhaps at or close to bottom is promising. A lot of other markets to go, but we will get there one-by-one.

Another promising stat I read is that U.S. saving rates are up to 5% from basically zero or even negative. I think they need to go to 8-10%, but we are getting there. Now a lot of people are lamenting the fact that the savings rate is increasing because they want people to spend and spur the economy back to life. I disagree. Individuals need to deleverage big time. It will be short term pain but for long term gain. And the sooner our economy gets used to a leaner spending pattern, i.e. one we can afford and still save for the future, the better. Corporate America needs to wake up and realize that if you build it they may come but that does not mean they can afford it for a sustained period. In other words, we built businesses to cater to U.S. consumers on a feeding frenzy and the frenzy is over. The consumers now must return to normal and probably overshoot, so some (many) businesses need to fail and others need to get used to much lower levels of activity. What I call, the new reality.

Oh, here is another piece of good news. Bernanke is very mad at the AIG bailout. Get in line!

Since taxpayers are getting the short end of this stick, who would not be mad?

Buffett Flat

Here is an interesting piece I saw yesterday. Based upon what Berkshire Hathaway (NYSE:BRK.A) reported as the cost basis of its equity holdings year end 2008, it is back to no gains (and probably a loss) on the overall portfolio. Even the buy-and-hold thingy is not working in what is now the worst recession in the past 100 years. Not as bad as the Depression, but that begins with a D.

Go to the Four Bad Bears chart on Calculated Risk and you will see quite visually how bad this one is playing out. We are basically down percentage wise about the same this far along (time wise) as we were during the big one.

Disclosures: None.