Sunday, February 27, 2011

Warren Buffett: America's Best Days Lie Ahead










From Warren Buffett's annual letter (2/26/2011):

"Last year – in the face of widespread pessimism about our economy – we demonstrated our enthusiasm for capital investment at Berkshire by spending $6 billion on property and equipment. Of this amount, $5.4 billion – or 90% of the total – was spent in the United States. Certainly our businesses will expand abroad in the future, but an overwhelming part of their future investments will be at home. In 2011, we will set a new record for capital spending – $8 billion – and spend all of the $2 billion increase in the United States.

Money will always flow toward opportunity, and there is an abundance of that in America Commentators today often talk of “great uncertainty.” But think back, for example, to December 6, 1941, October 18, 1987 and September 10, 2001. No matter how serene today may be, tomorrow is always uncertain.

Don’t let that reality spook you. Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than when I was born (see chart above). The prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and effective.
 

We are not natively smarter than we were when our country was founded nor do we work harder. But look around you and see a world beyond the dreams of any colonial citizen. Now, as in 1776, 1861, 1932 and 1941, America’s best days lie ahead."

25 Comments:

At 2/27/2011 12:50 PM, Blogger PeakTrader said...

Given the many problems in the U.S., our competitors, e.g. the E.U., Japan, China, etc., have even greater problems.

 
At 2/27/2011 1:07 PM, Blogger StVIS said...

I wouldn't get too giddy just yet.

Say, didn't this blog celebrate the end of the Great Recession by welcoming another jobless recovery?

 
At 2/27/2011 1:31 PM, Blogger Buddy R Pacifico said...

How can one argue with Warren Buffett?

I can't, but I believe strongly that America's best days lie ahead if America has the will to enforce trade treaties, that open and keep global markets as competitive as possible.

Mr. Buffett's Letter is enjoyable and interesting to read -- recommend it highly.

 
At 2/27/2011 1:38 PM, Blogger rjs said...

same things he wrote in last year's letter...

http://www.berkshirehathaway.com/letters/2009ltr.pdf

 
At 2/27/2011 1:40 PM, Blogger PeakTrader said...

This comment has been removed by the author.

 
At 2/27/2011 1:41 PM, Blogger PeakTrader said...

Given the failed economic policies over the past two years, people seem to forget the U.S. had the greatest era of prosperity from 1982-07.

If we had a V-shaped recovery (or a heavy dose of Reaganomics), the economy wouldn't look so bleak, and the term "Great Recession" would no longer be used.

 
At 2/27/2011 3:21 PM, Blogger VangelV said...

Given the many problems in the U.S., our competitors, e.g. the E.U., Japan, China, etc., have even greater problems.

While it is true that other countries have problems that does not mean that America's best days lie ahead.

Buffett seems to have been reducing his treasury holdings for quite some times and may actually own more foreign bonds than USTs at this time. And Buffett has never been shy telling people that they should buy companies protected by tariff and regulatory moats. His concern has always been about making money for himself and his shareholders, not what is best for the American consumer and taxpayer. So while I admire his ability to make money I think that he has a long way to go to become half the man that his father was.

 
At 2/27/2011 3:22 PM, Blogger VangelV said...

Mr. Buffett's Letter is enjoyable and interesting to read -- recommend it highly.

He still has a long way to go before he can write something as useful as his father did.

 
At 2/27/2011 3:26 PM, Blogger aorod said...

All we have to do is disappear and live like John Galt.

 
At 2/27/2011 3:29 PM, Blogger Buddy R Pacifico said...

Vangel stated:

"He still has a long way to go before he can write something as useful as his father did."

Evident by what, useful for what and to whom?

 
At 2/27/2011 3:38 PM, Blogger VangelV said...

"He still has a long way to go before he can write something as useful as his father did."

Evident by what, useful for what and to whom?


Howard Buffett was interested in liberty and the principles that made the United States of America the greatest nation on earth. His son was more interested in making money by taking advantage of some of the things that his father saw as serious shortcomings in the American system.

While Howard wrote and fought against money printing, his son argued for more expansionist government and took advantage of activities that would protect his companies' activities from competition, regardless of what that meant for the consumer.

 
At 2/27/2011 6:55 PM, Blogger PeakTrader said...

According to Warren Buffett, the U.S. is still in recession:

"We're in a recession until real per capita GDP gets back to where it was before."

BEA
Table 7.1. Selected Per Capita Product and Income Series in Current and Chained Dollars

Real Per Capita GDP (2005 dollars)

2007 Q4 $44,080 (peak)

2009 Q2 $41,713 (trough)

2010 Q4 $42,971 (latest)

 
At 2/27/2011 7:52 PM, Blogger Benjamin said...

I very much agree--we can have a better future, along with most of the globe (those parts that have market incentives).

Globally, the only people who are poor now live in repressive corrupt nations, where market forces do not prevail.

This golden age, btw, happened while we were off the gold standard.

The key for any nation to keep the bulk of the economy in the private free market sector. That is why i think it is time to sunset federal departments such as the USDA, VA, Labor, commerce, Education , HUD, and to cut military spending by 75 percent.

Cut Social Security? Fine with me, but the reason Congress talks about, as opposed to whacking federal agencies, that is they cannot spend the money as they se fit (rewarding friends).

The agenices I mention above siphon off 75 percent of federal income taxes (remember, Social Security and Medicare are self-funding though onerous payroll taxes).

You want to reduce the federal government and cut income taxes±±?--see the above agencies, and start whacking. Good luck getting any Congressperson to go along.

 
At 2/27/2011 8:06 PM, Blogger VangelV said...

Real Per Capita GDP (2005 dollars)

2007 Q4 $44,080 (peak)

2009 Q2 $41,713 (trough)

2010 Q4 $42,971 (latest)


This would be true if the BLS is using the correct methodology. I would argue that the evidence says that it is not.

http://www.shadowstats.com/

 
At 2/27/2011 8:10 PM, Blogger PeakTrader said...

VangelV, Shadowstats is not evidence, it's ignorance.

 
At 2/27/2011 8:22 PM, Blogger VangelV said...

I very much agree--we can have a better future, along with most of the globe (those parts that have market incentives).

Only if governments get out of the way.

Globally, the only people who are poor now live in repressive corrupt nations, where market forces do not prevail.

In which nations do market forces prevail again?

This golden age, btw, happened while we were off the gold standard.

What do you know of the gold standard? You have no idea what money really is and still hang on to the failed Keynesian and monetarist views. Under a gold standard a man's savings kept their purchasing power and were able to finance a long retirement. Purchasing power went up, not down. Since Nixon closed the gold window the USD has lost more than 80% of its purchasing power while many countries around the world saw their currencies lose all of their purchasing power.

Under a gold standard a government could not finance long wars by borrowing from future generations. It could not implement stupid policies and programs by hiding their true costs from the taxpayers. That is no longer true and we are drowning in a sea of failed and unsustainable policies.

The key for any nation to keep the bulk of the economy in the private free market sector. That is why i think it is time to sunset federal departments such as the USDA, VA, Labor, commerce, Education , HUD, and to cut military spending by 75 percent.

You have finally made a statement that seems sensible. By why so few cuts? Most federal departments need to be eliminated and more than 90% of federal employees need to be let go.

The agenices I mention above siphon off 75 percent of federal income taxes (remember, Social Security and Medicare are self-funding though onerous payroll taxes).

This is more like it. What we have is a totally stupid statement again. SS and Medicare are not self-funding. Taxes have been hiked over and over again and the programs are still on the edge of bankruptcy. If you used standard accounting you would find that the programs are bankrupt.

 
At 2/27/2011 10:42 PM, Blogger David Gallion said...

I remember a time, early in my trading career, when I was naive enough to believe a Fed monetary expansionist beneficiary like Warren Buffett.

In reality America faces its most dangerous days ahead. Buffett and his cronies will not suffer the fate of Americans washed out in the coming deleveraging tide.

Being an optimist when facts are optimistic is dealing in truth.

Being an optimist when facts are grim is being a liar.

 
At 2/27/2011 10:52 PM, Blogger Benjamin said...

Vange-

The paleomonetarists like you remind me of the captives in Plato's Cave--you actually believe the gold bug imagery being displayed on the cave wall. You are so mired in your own views, you cannot conceive of anything else.

We know what happens when currency gains value--people stop spending it. Ever read Hume? Know what happens when people bury gold in their backyards? Deflation begets more deflation begets depression. Read up on Hume and what it means when people take gold out of circulation in a gold standard economy. People who hoard wealth are an effing danger to the rest of us. Worse than parasites.

Take a look at Japan. Deflation just does not work in a modern economy. Maybe after 40 or 50 years, Japan will start growing again. I prefer not to wait that long.

The god nuts and Nipponistas have no good example to show us. On the other hand, very good global growth in the last 40 years has lifted billions of people out of poverty, sans gold standard.

Where is the modern nation, sans gold standard, that is prospering? Have you even an example of one? Not one? That is weak.

 
At 2/27/2011 11:48 PM, Blogger VangelV said...

VangelV, Shadowstats is not evidence, it's ignorance.

Williams lays out the case and shows how the new methodology misrepresents what is going on in the real economy. The objective evidence suggests that he is right and that the Fed and BLS are trying to manipulate sentiment by selective fiddling with the data.

Now if you want to argue that the new methods are better, that is fine. I will still disagree but for the sake of expediency let us say that they are right. If that is the case shouldn't the same methods be applied to the data from the 1970s and 1980s so that we can do an apples to apples comparison? Could it be that when independent analysts apply the same methodology they find that the 1970s look a lot like today?

This nonsense needs to end before Main Street Americans rise up and riot in ways that we saw in Greece and France. My guess is that it won't until America's creditors have had enough and force austerity measures that cut funding to special interests and to many people who have become dependent on transfers of wealth that come from taxing the productive class. At that time a replay of the Greek riots may be the best case scenario.

 
At 2/28/2011 12:38 AM, Blogger PeakTrader said...

VangelV, the U.S. economy before the Information Revolution and after the Information Revolution (around 1982) aren't the same.

You can add things up one way, a simple way with a systematic bias, and end up pounding a square peg into a round hole to make it fit.

Or, you can add things up a hundred different ways using many reliable data sources and get roughly the same answer, where everything fits well together.

 
At 2/28/2011 9:49 AM, Blogger VangelV said...

The paleomonetarists like you remind me of the captives in Plato's Cave--you actually believe the gold bug imagery being displayed on the cave wall. You are so mired in your own views, you cannot conceive of anything else.

I do not put much stock in superstition and imagery because there is plenty of real world experience to draw on. That experience tells me that gold (and silver) have been monetary metals for thousands of years just as they are today.

While statists have always known that the only way to implement their dreams was to attack the money supply by moving towards a fiat system they have failed because people understand that fiat currencies do not last. Even the mighty Federal Reserve Note has managed to lose more than 80% of its purchasing power in thirty years and is now as shaky as it has ever been.

It is you who saw the shadows on the walls that were cast by Keynes, Friedman, and other prophets of false money and believed that they were real. It is you who argue that this time history does not matter and that this time things will turn out very differently. Your problem is that the empirical evidence argues against you.

 
At 2/28/2011 12:25 PM, Blogger VangelV said...

VangelV, the U.S. economy before the Information Revolution and after the Information Revolution (around 1982) aren't the same.

They are not the same. But why does that mean that we should change the methods that we use to measure unemployment or inflation?

We can't spin this argument by claiming that things have changed because things always change. To justify the changes we have to use actual logic and facts and those are clearly against your position. And let us note that most of the changes did not take place until the 1990s and were not applied to the beginning of the 'Information Revolution,' which you claim began around 1982.

You can add things up one way, a simple way with a systematic bias, and end up pounding a square peg into a round hole to make it fit.

That is not much of an argument. Why wouldn't the improvements in the 1970s not be counted while those made in 1997 were counted? Why is arithmetic weighting legitimate in 2004 but not in 1974? You can't answer these questions logically so you resort to the 'things are different this time' approach. Well, they really aren't as different as you claim them to be. People still buy things and the price of what they buy does change as does the money supply.

 
At 2/28/2011 1:32 PM, Blogger PeakTrader said...

VangelV, we've gone over this many times before. In part:

The U.S. began to consume more than produce after 1980, through globalization, which is disinflationary.

Greater competition, (internationally and domestically) lower taxes, deregulation, etc. generated more output, which is disinflationary.

Productivity increased, which is disinflationry.

The Information Revolution diversified the economy, which is disinflationary.

 
At 2/28/2011 3:14 PM, Blogger VangelV said...

We know what happens when currency gains value--people stop spending it.

Really? Do you mean to tell me that when the USD had that great ride against the falling Euro and Americans found that their currency bought a third more than it used to they stopped spending? Or that because my own currency is up by around 60% against the USD since 2002 I must be spending a lot less?

Ever read Hume? Know what happens when people bury gold in their backyards? Deflation begets more deflation begets depression.

A deflation is a response to too much credit in the system that has to be liquidated. That is how the economy heals; by punishing bad judgement and rewarding good. Only some fool who looks at shadows on the wall would assume that when there is a liquidation going on people should go out and spend money foolishly.

Read up on Hume and what it means when people take gold out of circulation in a gold standard economy. People who hoard wealth are an effing danger to the rest of us. Worse than parasites.

When you look around and find out that there is too much debt that is being liquidated it is not hording to make a rational choice not to spend. In fact that is what we must do. When you get too fat and out of shape you have to eat less and do more exercise because that is how you correct the problem. When you are drunk you have to stop drinking. When you are broke you have to stop spending. Or if everyone else is broke you better learn that it is not a good idea in building more factories to sell more goods to people who cannot afford it.

What kind of a 'financial journalist' are you if an appeal to Hume is the best that you can do?

Take a look at Japan. Deflation just does not work in a modern economy. Maybe after 40 or 50 years, Japan will start growing again. I prefer not to wait that long.

Yes, let us take a look at Japan. What we had was an interventionist government and central bank that did not allow the malinvestments to be liquidated in the 1990s. Instead of letting the bad banks and weak inefficient companies go under the BoJ and Department of Finance tried to save everyone by printing and borrowing.

Japan did everything that Keynesians would want as Japan went from a nation that was running surpluses and providing credit to the rest to a country that borrowed trillions to build huge infrastructure products in order to prop up the economy.

And other than for a six month period the growth in M2 never went negative. Japan's failure is one of central planning and meddling. Had the government been forced to deal with reality by permitting a sharp and deep contraction to take place the pain would have been over more than 15 years ago.

 
At 2/28/2011 4:26 PM, Blogger VangelV said...

The U.S. began to consume more than produce after 1980, through globalization, which is disinflationary.

First of all, inflation and deflation are monetary phenomenon. The US money supply has exploded over the past 30 years and now threatens to bring hyperinflation, not deflation. Prices of goods in sectors where capital investments have improved productivity should fall. The problem is that because of all of the money printing they did not fall as much as they should have.

Then there is the issue of services. If you have not noticed the service sector dwarfs manufacturing output. The cost of services did not go down because globalization did not provide much competition to domestic suppliers.

Greater competition, internationally and domestically) lower taxes, deregulation, etc. generated more output, which is disinflationary.

Taxes have gone up, not down. And the big part of your economy, services, has had pricing power because of little competition, even after deregulation. Yes, it costs far less to make a phone call today than it did in 1982 but you still spend a lot more on telecommunication today than you did then. Yes, cable is cheaper but you pay a lot more of your income today even though you probably watch a lot less.

Productivity increased, which is disinflationry.

Really? The government grew in size and now takes up a much greater portion of GDP than ever before. Does having more bureaucrats passing more laws and creating the need for more people in the compliance sector mean more productivity? You are spending a lot more on education today but your kids are not doing as well as before. You are spending a much greater portion of your national income on health care but life expectancy has not changed by very much. You have many more policemen but your crime rates have not improved by very much if at all. While some sectors have seen a huge increase in productivity that is typical in any period. And as in other periods, other sectors have not shown much improvement at all.

The Information Revolution diversified the economy, which is disinflationary.

Nice words but there is little support for it. The IR created more demand for more services. That means that much more of your income now goes to pay for services that you did not use before. But the amount you pay to feed your family, drive to work, educate your kids, insure your car, your health, or your life, etc., did not go down. The deflation argument is a myth based on narrative that has no basis in reality.

 

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