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March 4, 2008
Buffett’s Straight Talk

CNBC had a three hour Q&A with Warren Buffett yesterday (transcript).

One may agree with him or not, but he always has some good straight talk:

QUESTION: You have stated that people, including you, aren’t paying enough taxes. …

BUFFETT: Well, I don’t–I don’t say generally people. I think the lower class, the middle class, even the upper middle class are paying more than they should be paying. I think that the super rich, like myself, you know, my tax rate was 17 and a fraction percent in 2006, and everybody else in the office was paying way more. I’m not advocating tax increases across the board at all. I’m advocating a redistribution to the super rich. In the last 20 years, the total wealth of the Forbes 400 has gone from 220,000,000,000 to a 1,540,000,000,000 seven for one. The average wage has gone no place in real terms, it’s up about 80, 85 percent and that’s exactly what inflation is. So the world has gotten tilted to the super rich, and I think that the middle class and even the upper middle class, I think they’ve been getting a very raw deal. So I would change their taxes and move them over to people like me.

Other major points he makes are:

  • The U.S. economy is in recession. (part 2)
  • Home prices will go down further. (part 5)
  • Construction business is going down and has not hit its bottom at all. (part 10)
  • The dollar will go down further unless policy changes big time. (part 4 part 9)
  • The Fed will likely ignite serious inflation. (part 7)
  • Financial derivatives and hedge funds are stupid things that will fade away. (part 7)
  • Oil will continue to rise over time as it is a limited resource. (part 11)
  • Using ethanol as a replacement is not a good idea as it increases inflation via food prices. (part 6)
Posted by b on March 4, 2008 at 17:02 UTC | Permalink
Comments

I would love to see a Super-rich American like Buffet frame the higher taxes for themselves under the “Patriotic” angle= “Our country is suffering and the super-rich like me can afford to do more for America, and we should! Those who advocate paying less taxes when they own multiple homes, yachts, and dozens of vehicles are unpatriotic and unamerican!”
What Buffet is doing is a worthy thing. I won’t hold my breath for many others to follow suit, though. Working with millionaires has taught me one thing about them that is relatively uniform- the richer they get, the more greedy they become.

Posted by: Anonymous | Mar 4 2008 19:20 utc | 1

You can bet your bippy this story will be ignored by the MSM.

Posted by: Ben | Mar 4 2008 19:29 utc | 2

On the subject of general (global) economy, a while ago Bernhard wrote a very good post on how the Fed’s rate cuts were encouraging a new bubble in commodities – Fed Rate Cuts Kill People
Ambrose Evans-Pritchard offers proof with the latest figures: Fears of a commodity crash grow

India faces a mountain of surplus sugar. Over 20m tonnes sit in warehouses, begging for buyers.
Brazil has ramped up cane production in a burst of expansion. It is now exporting record amounts of sugar, even after diverting half its harvest into ethanol for cars.
By any definition, there is a global glut. Yet this has not stopped sugar futures jumping 40pc since December, reaching 14.18 cents (7.1p) a pound on the March 2008 contract.
Sugar has been swept up with the whole gamut of commodities – grains, metals, oil and gas – in a fevered surge of investment in futures contracts, regardless of the real demand from daily users. Wheat has risen 112pc in four months.
(…)
The “culprit” is the new breed of commodity index funds. Each week over the last two months, between $5bn and $10bn of fresh money has been pouring into the Goldman Sachs Commodity Index, the Dow Jones-AIG Commodity Index, and other funds, according to a UBS study. Together, the indexes now hold $200bn.
“Some commodities have leapt into the stratosphere over the last year: they’ve been pushed higher than the fundamentals merit,” said John Reade, head of the UBS metals team. The buyers are typically big institutions such as Calpers (the California retirement fund), or the Dutch pension funds.
(…)

Funds, etc., desperate to show convincing returns are running after the Pied Piper once again. So this bubble has the potential to be more painful for ordinary folks than the previous one. Deadly as it goes up, and deadly when it comes down.

Posted by: Alamet | Mar 5 2008 1:10 utc | 3

This commodity bubble is going to burst and burst hard. The kind of behavior described by Alamet is usually an indication something is overbought.
Just like real estate and the tech stocks in the 1990s, this puppy is about to crash.
As far as Buffet, we’re going to have to basically confiscate the money of the rich to bail the US out of Bushes mess.

Posted by: jdp | Mar 5 2008 2:47 utc | 4

Buffet is not as unrepresentative as you might think. Many of them are very responsible & DEPLORE these policies. And then of course there are the extremist greed junkies found in every class.
As far as Buffet, we’re going to have to basically confiscate the money of the rich to bail the US out of Bushes mess.
Great idea, jdp. You’re immediately appointed.
But first don’t we have to wrestle in the off-shore banking sector?
Are y’all aware that the 100k acres Bush – dunno which – bought in Paraguary is not only next to Moon’s land; but far more horribly, atop one of the largest aquafirs (sp?) in the world (according to Catherine Austin Fitts).

Posted by: jj | Mar 5 2008 3:40 utc | 5

Stephen S. Roach : Double Bubble Trouble

The central question for the economy is this: Will this medicine work? The same question was asked repeatedly in Japan during its “lost decade” of the 1990s. Unfortunately, as was the case in Japan, the answer may be no.
…
The current recession has been set off by the simultaneous bursting of property and credit bubbles. The unwinding of these excesses is likely to exact a lasting toll on both homebuilders and American consumers. Those two economic sectors collectively peaked at 78 percent of gross domestic product, or fully six times the share of the sector that pushed the country into recession seven years ago.
For asset-dependent, bubble-prone economies, a cyclical recovery — even when assisted by aggressive monetary and fiscal accommodation — isn’t a given. Over the past six years, income-short consumers made up for the weak increases in their paychecks by extracting equity from the housing bubble through cut-rate borrowing that was subsidized by the credit bubble. That game is now over.
…
Like their counterparts in Japan in the 1990s, American authorities may be deluding themselves into believing they can forestall the endgame of post-bubble adjustments. Government aid is being aimed, mistakenly, at maintaining unsustainably high rates of personal consumption. Yet that’s precisely what got the United States into this mess in the first place — pushing down the savings rate, fostering a huge trade deficit and stretching consumers to take on an untenable amount of debt.
A more effective strategy would be to try to tilt the economy away from consumption and toward exports and long-needed investments in infrastructure.

Posted by: b | Mar 5 2008 7:40 utc | 6

Good post! Very interesting feedback. Thanks you guys. This is a post to watch.
Oh, I get a 404 Not Found at the link for the CNBC transcript, B.

Posted by: jake | Mar 5 2008 15:20 utc | 7

@jake – link corrected – thanks

Posted by: b | Mar 5 2008 15:34 utc | 8

Buffet reads the internet, or has a sec. do it. (say… anyway he keeps in touch.) He wants to be seen as sympathetic, the bright face of capitalism.
He made his fortune in the present conditions, and has never discussed or challenged those. His clean hands reaction was to give big moolah to the Bill and Melinda Gates, actually the *Global Funds* foundation – private charity that picks and chooses its issues, in function of expected good press, commercial ties, geo political influence, etc. as well as undermining or killing off previous arrangements. Charity is HUGE biz.
Buffet uses his success and his relatively good press, carefully managed, to shore up his own judgment of himself as a sort of ubermensch, above the fray, but with a folksy touch if he is called on to pontificate or pronounce.
He is sincere, or sincere enough, given the constraints and excuses. A deeply cynical man, ready for anything – human folly is not his concern; earning money from it is.
His breakfast party on 9/11 raised many eyebrows.

Posted by: Tangerine | Mar 5 2008 21:34 utc | 9

I’m not sure if there are any billionaires who are not “deeply cynical” – or perhaps the right word is “realistic” – when I compare Buffett with Forbes fils I find I like Buffett much more.
Here’s something from the transcript – the bracketed parts are my own interpolations intended to disambiguate the written text.
>>Steve Cady from Charlottesville, Virginia, writes in: `With the obvious understanding that you have of economics and of business, how in the world can you be a Democrat?’
BUFFETT: Well, I think–I first became a–I was president of the Young Republicans Club at the University of Pennsylvania. My dad was a Republican congressman. We used to sit around the dinner table thinking that if Roosevelt won again that the country would disappear and all that sort of thing. But civil rights in the early ’60s probably changed my view. I just felt–it wasn’t exclusively a Democrat vs. Republican issue, but I felt the Democrats cared more about it. I feel the Democrats–I feel people like me can take care of ourselves. The Democrats, I think, have some more concern on average, but it’s not universal. I vote for Republicans [sometimes]. But I think [the Democrats] worry a little bit about–more about the people that get the short stick in life. <<

Posted by: mistah charley, ph.d. | Mar 6 2008 1:06 utc | 10

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