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Buffett Commands

One thing your editor notices after being out of contact with the financial news for the better part of two days is that most financial news is rubbish. It doesn’t matter much, at least when it comes to be the big underlying themes moving markets that we like to discuss here at the Daily Reckoning.

For example, once we were able to log on to the World Wide Web at our hotel on Maryland’s Chesapeake Bay, we learned from Bloomberg that Warren Buffett has ruled out a double dip recession in America. Gadzooks! Somehow, while we were sleeping over the Pacific, America became a command economy subject to the whims of Warren!

Buffett, in his role as aloof spokesman for a bygone era, said, “I am a huge bull on this country…We will not have a double dip recession at all. I see our businesses coming back almost across the board.”

All of that is interesting. But only some of it is relevant. Berkshire Hathaway’s shareholders would be more concerned with the actual performance of its units than how Buffett feels about America. But to the extent that Buffett himself has become a brand (cliché), then exuding confidence about future profits is probably part of his job.

Buffett being bullish on America the brand may be an example of generational attitudes. We had this conversation on Saturday night with a financial journalist from one of Australia’s tabloids. There is a certain generation of Americans and Australians who have a basic confidence in the power of good government to accomplish big and worthwhile goals. After all, this is their experience of government, from World War Two on.

And to be fair, we’ve had contact with this as well. For example, last night at the airport hotel in Baltimore we ran into a group of World War Two veterans. Their trip to the DC area had been sponsored by an outfit who wanted to honour war vets by giving them an all-expenses paid trip to Washington to see the war memorials.

The irony for your editor is that the group at the hotel last night was from Northern Colorado, where we were born and raised. We sat next to a gentleman from Loveland, Colorado and made small talk while we watched a football game.

“I can’t believe they made such a fuss over us,” he said. “They picked is up in a bus. But we had a police escort all the way to airport. And along the way the firemen and police from the local houses came out and saluted us. And we didn’t even have to go through airport security, which is a good thing, given all the walkers and medical equipment these guys have now. It was a chartered flight too.”

“It looks like quite a few of you are staying out late,” we ventured.

“Bunch of drunks probably,” he said, “Present company excluded.”

We chatted for a bit longer and gradually realized that the America this man went to fight for as a young man was a much different country than the America he was travelling through now. For example here in the Baltimore you see conflicting signs about America’s fortunes. On the one hand, real estate prices in the region have fallen less than in other places. Government is a growth business. There is always a migration of transient opportunists and conmen making their way to Washington and living in its suburbs.

On the other hand Baltimore itself – once the great Eastern port where the ocean met the railways – is a shell of its former itself in a quite literal sense. Baltimore’s outer suburbs used to be working class houses for the families of men who made commerce work in the city. The raw materials and finished goods of the interior of the country were unloaded from trains and on to ships and sent abroad.

The sheer productivity of 19th century American generated huge profits and surplus capital. That capita funded more business and built better infrastructure to facilitate more trade. It also built some beautiful 19th century mansions in Baltimore’s Mt. Vernon neighbourhood, some of which are now home to your editor’s parent company.

Even as you travel down the Chesapeake Bay to some of the earliest European settlements on the Eastern Seaboard, you the tobacco farms that grew some of America’s most profitable exports to Europe. And that time, and for a long time thereafter, it was mostly raw materials. Later, it was finished goods and cars and higher value-added goods with bigger profit margins for producers.

It would be unfair to say America doesn’t make anything. But you get the feeling that its biggest export for the last twenty years has either been the idea of America itself (the brand) or the dollar. Not that it hasn’t been a good trade. Trading dollars for goods and services gets you an awful lot of goods and services.

But what if the rest of the world isn’t interested in making that trade anymore?

Apologies in advance if we’re a bit scattershot this week. It’s the one time a year we get to catch up with our colleagues from around the world to hear how business is going. It will also be interesting to see what people who live here every day are saying about the economy and the future. And at the very least, it will fun to watch Kris Sayce eat as many cheeseburgers as possible during his short stay in the spiritual home of the cheeseburger. Until tomorrow.

Dan Denning
for The Daily Reckoning Australia

65 Comments

  1. Ross says:

    Buffet can’t afford a double dip – he bought a railway! The oracle of the inside run is so far up the QE position that he thought he better put a bung in it.

  2. Rod says:

    No chance of a double-dip recession ? Business “coming back” ? ha ha
    I guess he’s off with the fairies skipping off down the yellow brick road holding hands with Obama then. Perhaps he needs to talk to Celente…
    The US is officially in economic depression, growth is virtually non-existent, domestic GDP is sweet FA, unemployment figures are catastrophic (U6), 20% of the population are at poverty level, the next wave of sub-prime crises is due followed by prime residential, commercial, the student loans repayment crisis, student jobs, foreign pullouts of treasury bonds, ever-increasing debt levels circa $80T now, widespread collapsing infrastructure with a $2T repair bill estimate, with the IMF’s Bancor waiting in the wings etc.
    Let’s talk reality – prolonged economic depression and mass starvation.
    His railway will no doubt be useful to the Chinese though, who own large chunks of damn near everything everywhere, which I’d think is why he bought it.

  3. Biker says:

    But wait… there’s more. Oprah is about to mount a ginormous fact-finding mission, bringing new colonists to the shores of the GSL… . ;)

  4. Davo says:

    Better check that Oprah’s purchased a return ticket.

  5. Biker says:

    OK. Checked that… she hasn’t!~ Will this become the long-fabled ‘Plane People’ migration we’ve all read about?! ;)

    Our Ozbuck looks pretty good, Davo.

    Son1, who has just flown to from Munich to Venice, is enjoying the record Oz/Euro exchange rate… . :D

  6. Davo says:

    Hi Biker,
    Spent $6K on USD last week, when the rate was .9207, so I’m a bit behind, but happy enough with that result.
    Shame the bank rips 3 percentage points off you, so real exchange rate was .8907.
    Last time we went to US 4 years ago, rate was around .76.
    So I’m hoping it stays high until Christmas.
    Notice the AUD/NZD rate has crept higher lately too.
    Cheers

  7. Biker says:

    You’re doing OK, Davo… . :D

    Maybe the QE2 may mean it’s an even better bet mid-’11, when we go next… .

  8. Davo says:

    I’d love to travel in the middle of the year, but workload is a killer then, so forced to go when it’s freezing. It’s about the only time I wear the cold weather gear, except for the odd day here and there in July/August. School holidays restricts us as well, but only until end of 2012.
    I know a woman whose parents took off 14 years ago, when she was in year 10, with older siblings, and have travelled on the cheap for 11 months a year since. Kids survived fine on their own.
    They take a motor bike and sleep rough if they have to, but after all that time, they know people everywhere and get free accommodation a lot of the time.
    Have apparently been to almost every country.
    Sounds good to me some days, but never ridden a bike, so would be a short holiday.
    Would need to go back to Cook Islands to get my bike licence. If you can ride from police station, around the only roundabout and back to the station (maybe 100 metres in total), you pass.

  9. bearamundi says:

    Pulled the trigger davo, better exchange rate than before.

    Latest ‘Keiser Report 77′ has a 15 min interview with the (in)famous Steven Keen. Brilliant stuff!!

  10. Biker says:

    You’ll enjoy the freedom which arrives when the kids finish school, Davo.

    We’re fortunate to have reached an age where we can now manage to enjoy the NH summer, then stay on for winter… White Christmas, etc. The beginning of summer will be spent on Gabriola Island, where the family has had a holiday cottage for over six decades. Sweet spot in the Gulf.

    This time we’ll include a few weeks in _eastern_ Mexico. I’d like to pick up a hire bike there. Busing around western Mexico was a poor substitute last year… . I may even ship one of my bikes to Seattle next year.
    I figure I’ll have to _leave it behind_ and be forced to get a new one once home. ;)

    You’re right about it being a short holiday overseas for a new biker.
    A young woman _pleaded_ with me to teach her how to ride three days before she left for Bali. Failed to dissuade her. Day 1 I taught her. Day 2 she failed her licence. On Day 3 I retaught her. She failed again. She left for Bali, did the ‘once round’ test in Denpasar…. and passed. Not sure which day it was she crashed and was hospitalised… . Game over.

  11. Biker says:

    “Pulled the trigger davo, better exchange rate than before.”

    Yes, you called it, Bear. All class. No a*se at all… . :D

  12. bearamundi says:

    I think I got angry last week because my mate is getting done like a dinner over an investment that failed 12 yrs ago. He went into a top 10 aussie investment which went bust. Lost his entire input. But creditors started chasing him- he is just a Mum and Dad investor, for more money. The guy he went in with declares bankruptcy and now creditors are chasing my mate for his input as well as his. Big warning for me about doing business with the big end of town. Creditors have collected something like 5.1 million nationwide so far but still not happy 12 yrs later. Frightening.

  13. Ned S says:

    And I suggested hedging? Good thing I’m used to being wrong hey! :)

  14. Ned S says:

    “Good thing I’m used to being wrong hey!” – Which is presumably why I suggested hedging. As a mate once said to me ‘Well you’ll never be rich, but just maybe you’ll never be poor either???’ :D

  15. Biker says:

    I was wrong once. Cost me (us) $55K. _Never_ again… .

    These days, I’m happy with 4.5 – 6.9% after tax. :D

  16. bearamundi says:

    Yeah, you think you know people and yet they can be so gullible with a fortune of hard-earned. My mate is the guy I ride to work with and for 6 months he’s had the black dog. Go for a coffee to cheer him up and he’s distracted,chewing over this debt.
    I haven’t made too many mistakes with money, more a case of luck and having a shrewd wife than anything else. It’s my mouth that can get me into trouble. I can say the dumbest/most dangerous things. Better to stay quiet than remove all doubt is my mantra. You just get tired I guess, and oops, another Homer Simpson moment that fortunately usually doesn’t get picked up on.

  17. Ned S says:

    “Better to stay quiet than remove all doubt is my mantra” – God love you brother! I do enjoy a good laugh!!! :)

  18. bearamundi says:

    I reckon!! Ned :)

  19. Biker says:

    “Yeah, you think you know people and yet they can be so gullible with a fortune of hard-earned.”

    If it looks too good to be true, it usually is…

    My missus and I have a pact. Neither of us is getting any younger… and the folk we see losing _millions_ are mostly in the ‘seniors’ category.
    The deal is that _neither_ of us makes a financial decision without the full and total a$$ent and agreement of the other.

    It’s not failsafe, but it’s extra insurance against major lo$$… .

  20. Ned S says:

    “Neither of us is getting any younger… and the folk we see losing _millions_ are mostly in the ‘seniors’ category.” A few facts have to be faced Biker:

    * Often the silly buggers with millions to lose will be the more senior types.

    * If there is any truth in the saying that ‘Hope springs eternal’ (??? – As opposed to reality!) they can certainly tend towards silliness in spite of their many previous life experiences that SHOULD have served to smarty them up.

    * So Yes, to have a trustworthy co-executor of any family assets of worth is probably a very good idea.

  21. Ned S says:

    -) – Jeez if that non smiley thing works I reckon I’m really good! And if it doesn’t, I’ll just have to keep practising … ;)

  22. Ned S says:

    _)

    Crash ‘n burn most likely?

  23. Ned S says:

    One last try: -: ???

  24. Ned S says:

    A question – If our dollar exceeds parity, does that mean we have to put America on the list of nations that receive our financial aid??? :)

  25. Biker says:

    Try : (

    That’s colon first bracket
    No space

    A smile is opposite

    Colon final bracket : )
    No space

    Cheesy grin is colon capital : D
    No space

  26. Biker says:

    “Often the silly buggers with millions to lose will be the more senior types.”

    Vitamin B deficiency (?)

  27. Ned S says:

    “Vitamin B deficiency” – No such worries for those who teethed on Sao bikkies (or Rusks when the health profs started spruiking) smothered in vegemite mate! :)

  28. bearamundi says:

    The deal is that _neither_ of us makes a financial decision without the full and total a$$ent and agreement of the other.

    Them’s hard terms Biker, you are stuffed mate :)

  29. Biker says:

    Yep, $tuffed… :D

  30. Bearamundi says:

    NZ next week, got a boost printing off electronic tickets/hire car/accomodation. From my perspective reality is harsh, and while these little breaks might not be full of joy they are a darn sight better than working. Two days CBD Auckland ($500 a night hotel on discount to $121NZ), then Coromandel and road trip down South (car $29NZ a day, used this company before), with some bush-walkinmg thrown in for good measure.
    NZ has very good community resources, way better than aussie, probably because like Canada it is a cold country. Take the kids to the playground and it is just that, not a tiny swing like you get here. Go to the pool and there is nearly always a hydro-slide, and spa-pool.NZer’s seem very efficient with local govt money. Good place.

  31. Lachlan says:

    Australia rules Bear ;)
    ..although Ive heard theres some good alluvial gold lying about in some isolated country in NZ. When are we going Bear? I do know of some locals here who are trying out their luck in isolated parts of PNG but they might lose a their head or a limb or three to locals who live by the machete :(

  32. Lachlan says:

    Our silver trades looking promising Bear and the PMs seem to be grinding higher despite the usual suspects. The paradigm does seem to be changing albeit in slow motion… since no decent gold correction has taken place since the bottom around 1155USD. Something should have taken place ages ago in this regard.
    Caught you Keiser 77 last night too. We have a big gum tree in a paddock here which the big bulls rub on and push against. I imagine ol Keene up top (the koala/AUDbear)…the territorial bulls shaking his tree ;) ;)

  33. Stillgotshoeson says:

    Silver and Gold doing well…
    Not to sure about BHP’s future and the welfare of some in WA

    http://www.heraldsun.com.au/business/terry-mccranns-column/marius-kloppers-sells-bhp-billitons-soul/story-e6frfig6-1225924317912

  34. Bearamundi says:

    Lachlan,

    Out of interest I knew the guy who found the Hand of Faith in 1980, that huge nugget of Gold in Bendigo. He was a Dutchie who owned the local bicycle shop. He had a detector but it was found sitting right on top of the ground, 870 ounces I think. He sold his shop (I got some good discounts), said he’d bought all his kids a house each and went bush pretty much.

  35. Lachlan says:

    Small world eh Bear.
    Thanks for the article Shoes.
    I doubt this is a risk for the big miner. Our corporate overlords think this doozy consumption/carbon tax might save our collective backsides…but that will be at the expense of the peasantry and the small enough to fails. In some ways and thinking short term I wish they are right … I’m happy enough with my lot…maybe we can kick the can a few more years. I just detest the lies. Also, longer term this course of action leads toward disaster ie, human nature…driven by fear…will form alliances…will practice deceit…to control…to maintain privelages/status quo……well this theme tends to intensify until society becomes at risk of collapse. Cycles of government seem take place over long time frames (decades and longer) but do mimick cycles of behaviour identifiable in individuals over various shorter time frames ( eg pride comes before a fall etc). I dont think you can turn these tides in the greater sense. We’re fortunate if we get to live through saner/more sober portions of said cycles.

  36. Biker says:

    “Often the silly buggers with millions to lose will be the more senior types.”

    And, talking of silly buggers, they’re blocking my stuff again, Ned!~ :D

    Let’s see if another try gets _this_ through… ;)

  37. Biker says:

    OK… I get it. They’re blocking a link to a _competitor’s site._

    Pity, as it had a very informative article on the use of silver in (90% of) solar panels manufactured. Particularly relevant given Gillard’s comments on solar electrickery in today’s midday news… .

  38. Stillgotshoeson says:

    Comment by Lachlan on 16 September 2010:

    Thanks for the article Shoes.
    I doubt this is a risk for the big miner

    I think it is a big risk, not just for BHP but all the big miners as well as the WA and Australian economies.. I am not a believer in man made climate change.. I am more of the opionion that climate change is a natural process of the Earth and influenced more by the Sun than any other single “source”

    I agree we should be looking to reduce emissions for health reasons.. pollutants = higher risk to health.. we (humans) have the technology and capabilities to re generate semi arid regions of Australia and other countries into forests.. a far better option IMHO at reducing CO2 levels of the earth
    than a pointless ETS/Carbon Price/Tax..

  39. Stillgotshoeson says:

    Comment by Biker on 16 September 2010:

    OK… I get it. They’re blocking a link to a _competitor’s site._

    Trying hard not to communicate with you Biker but I will offer some help here..

    post the link minus the http// and we can have a looksie ;)

  40. Biker says:

    Nope. That doesn’t work, either.

    Google: silver use in solar panels

    Series of interesting sites, but if I name the specific site, they’ll simply block it again…

  41. Stillgotshoeson says:

    Comment by Biker on 16 September 2010:

    Nope. That doesn’t work, either.

    Rapidtrends(dot)com ?

  42. Lachlan says:

    Mine on BHP is speculation Shoes. When things went pear shaped in the USA the faint smell of corporate oligarchy became a stench. I suspect such is/will be, almost universal. I tend to think that democracy/free society evolves naturally into oligarchy driven by the constant of human nature.
    I agree with your climate views and also about reducing pollution. The insanity prevailing now is a group trying to implement a carbon tax to save the earth, who at the same time generate staggering levels of wasteful consumption and unsustainable growth. And yet some people see nothing out of place there.

  43. Lachlan says:

    Thanks fellas. Saved that site for future reading. Blows me away how lucky are we to have the internet. People without it are left in the dark…in a big way.

  44. Ned S says:

    Shoes: “we (humans) have the technology and capabilities to re generate semi arid regions of Australia and other countries into forests.. a far better option IMHO at reducing CO2 levels of the earth than a pointless ETS/Carbon Price/Tax.”

    If that’s the case then count me in – Shoes for PM!

    Lachlan: “Blows me away how lucky are we to have the internet.”

    True. And when the RBA and REIQ start publishing their raw data on it free to the likes of me, my joy will be complete … ;)

  45. Biker says:

    Good link, but not the one I attempted to send.

    Shoes for Precious Metals? What else is new??!~ :D

  46. Biker says:

    Crazy. They block a site pushing silver… and let through Pascoe’s analysis of the Aussie gold price… . :D

  47. Ned S says:

    “Shoes for Precious Metals?” – Seriously though Biker, if anyone does actually have some clues on how we might be able to return some trees and the megafauna to Lake Eyre and Uluru, then no Aussie should have to give a thought to holding precious metals again any time soon. Except as their run away quickly stash for when those who are envious invade maybe? :)

  48. Biker says:

    Ernie Bridge’s plan to pipe water south from the Ord was picked up by Colin Barnett, WA’s premier, a few years back, but got little support in WA. Solar pumps could have made it possible. The whole northwest might have been opened up to agriculture, much in the same way as C Y O’Connor’s pipeline opened up the goldfields east of Perth, a century ago.

    Shoes for PM, Ned? First he’d abolish Negative Gearing, then increase Capital Gains on property. His solution for a crisis? Head for the bush to hide out at dad’s place. _Classic_ leadership style… . :D

  49. Biker says:

    :D Yer making Julia look _really_ palatable, son!~ :D

  50. Ned S says:

    “The whole northwest might have been opened up to agriculture” – And our pollies want to score brownie points chatting about the best ways to keep a few boat people out and what form of parental leave might prove most popular. It must be that Resource Curse thing that the blogs chat about I guess?

  51. Ned S says:

    “Yer making Julia look _really_ palatable” – I’d prefer bunny stew if that’s alright? ;)

  52. Stillgotshoeson says:

    Comment by Biker on 16 September 2010:

    Shoes for PM, Ned? First he’d abolish Negative Gearing, then increase Capital Gains on property. His solution for a crisis? Head for the bush to hide out at dad’s place. _Classic_ leadership style

    Biker is mistaken Ned.. I would actually retain Negative Gearing but limit it to new dwellings only.. I would also lower the CGT..
    I would also look to reduce Company Tax rates and income tax rates.. I would however look at raising the GST to 15% If I was to run for public office..

  53. Ned S says:

    “retain Negative Gearing but limit it to new dwellings only.. I would also lower the CGT..

    I would also look to reduce Company Tax rates and income tax rates.. I would however look at raising the GST to 15%”

    I think I’d take a risk on a reasonably balanced grabbag of other policies even if they did require upping GST by 5% IF we could turn our ‘brown heart’ into something considerably more productive Shoes. It really should be a bit of national dream to whatever extent it might be feasible. IMO.

  54. nv says:

    I would brign back the death duty at say, 30%, and GST 25%.
    Neg gear ’till ya hearts content.

  55. Ross says:

    Ned, this guy wants your ass. http://www.globalresearch.ca/index.php?context=va&aid=21068 Must say that I agree that the last decent US President was Cleveland, definitely from the Democrat side anyway.

  56. Stillgotshoeson says:

    This article reinforces my view to not hold bank stocks at the moment…

    http://www.theage.com.au/business/constraints-on-bonds-as-retail-punters-back-banks-20100916-15em6.html

  57. Biker says:

    Yep, Gillard actually _shines_ in this company!~ ;)

    Nice to see The Big Sulk is over, anyway… . :D

  58. Ross says:

    Shoes, its all about the dividends for retail and why wouldn’t it be with regulators preening their feathers claiming that 4 pillar mutton is lamb as at the same time Norris takes a salary income of 15 times what the CBA CEO took in the early 90′s. Better than house price appreciation that!

    I haven’t read it personally but the ex NZ reserve governor apparently has just call them in his book on their bodgy undercapitalised and mass unhedged currency play in their branches in NZ.

  59. Stillgotshoeson says:

    Comment by Ross on 17 September 2010:

    Shoes, its all about the dividends for retail

    According to the latest Reserve Bank Bulletin, households with direct share holdings have 65 per cent of their portfolio in financial stocks,

    Being a little contrarian in my strategy I am jsut cautious about any thing that becomes “popular”.
    Houses over the last 20 years have been very popular.. get in now before it’s too late, houses always go up.. now houses are not as popular and the market is cooling and in some regions falling in value, the suburb I live I have noticed more and more houses coming on market under 400K.. These were not that long ago rare and generally under 400K was “in need of a little TLC” according to the ad for it.. now there are more and more coming on in that price range.. average price seems to have come down around 10%..
    Bank stocks may (probably even) continue to rise in the near term, won’t in the least bit be surprised to see CBA go past $60.. however on the same page, I will not be surprised (expect infact) for it to drop below $40 and may be even sub $30
    when (not if) the next stock market correction occurs..

  60. Stillgotshoeson says:

    Emissions legislation in California is looking to have a fight on it’s hands…

    http://www.nytimes.com/2010/09/17/us/17pollute.html?_r=1&hp

  61. Biker says:

    Shoes: “Emissions legislation in California is looking to have a fight on it is hands…” ;)

    Under the headline ‘Oil is Out… Clean Energy is In’ today’s DR (US) tells a different story:

    “Whether it’s the 30% cash up-front that the government is willing to give renewable energy projects or the vast amounts of cash injections into various energy technologies programs, renewable energy is set to take off in America.”

    It makes far more sense to fund energy alternatives, avoiding unwinnable foreign wars and reducing America’s dependance on foreign oil… .

  62. Stillgotshoeson says:

    Comment by Ross on 17 September 2010:

    Shoes, its all about the dividends for retail and why wouldn’t it be with regulators preening their feathers claiming that 4 pillar mutton is lamb as at the same time Norris takes a salary income of 15 times what the CBA CEO took in the early 90′s. Better than house price appreciation that!

    I haven’t read it personally but the ex NZ reserve governor apparently has just call them in his book on their bodgy undercapitalised and mass unhedged currency play in their branches in NZ.

    My first response was up for moderation and is now gone… DRA did not like what I said..

    Basically I think a lot of people are perceiving the banks as a safe investment for both preservation and growth of their capital with rising share prices and the good yields.. Dividends are going to come under pressure at current rates and subsequently share prices too..
    CBA shares may hit $60.. I feel confident in saying they ARE going to hit $40 as well.. maybe even lower..
    Of the four I like ANZ the most but still not inclined to go with the banks yet..
    A side note. I see many analysts are saying sell Telstra now.. growth prospects hampered… if you bought at $3.50, $5.00 or $7 then yes you would be annoyed, will be some time before any growth comes out of Telstra.. however at $2.75 and returning $0.28 a share (fully franked) dividend they are looking quite good as an income stock.

  63. Ned S says:

    Ross: ” Ned, this guy wants your ass. http://www.globalresearch.ca/index.php?context=va&aid=21068

    Thanks Ross. Yep, he does an excellent job of laying out what is happening and why regarding the developed nations lending money to the developing ones alright – Ta.

    Doubt he’s on my case as such. No more than Ken Henry is anyway! :)

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