Karen De Coster
Thursday, Oct 23, 2008
“Believing that fundamental conditions of the country are sound and that there is nothing in the business situation to warrant the destruction of values that has taken place on the exchanges during the past week, my son and I have for some days been purchasing sound common stocks”
~ John D. Rockefeller, October 29th 1929.
I’ll tell you what the real purpose is behind Warren Buffet’s recent column in the New York Times.
Buffett writes, “Buy American. I Am.” He goes on to say that Americans should not panic and flee equities, but instead, they should buy them. That’s right – Warren Buffett wants people to buy equity stakes in American companies.
Buffett is doing the government’s dirty work in trying to calm the fears of the masses. That was the whole purpose of his column. He agreed to become an instrument for the establishment, and when Buffett speaks, people tend to listen. The timing was perfectly executed. As the markets splintered and rocked the world of regular people everywhere, they were exiting their speculative adventures in equities and escaping to safe havens in their 401k accounts. And here was the respected, industrious, sensible folk hero, telling everyone that the fear felt by others should be a sign to us, and let that dictate our speculative strategy.
Warren Buffett is an admired man. He is admired, even by the middle and lower classes, for his frugality, wisdom, no-nonsense delivery, plain-folk personality, and yes, his hard-earned wealth. Readers may know that I deeply respect this man because I reflect on his business acumen frequently. But his latest column puts him in the role of being a propagandist for the government and its bull market-perpetual bubble-sustainable boom doctrine. The government and its Wall Street cronies are big on building “investor confidence” these days, especially when it comes to selling you on the stock market game and the ever-increasing Dow. Warren Buffett is working to convince you, the unsophisticated investor, to have unmitigated confidence in the market so that you will continue to buy and prop up market fantasies, even in a time of rapid decline and volatility. I find his reason for not fearing the equity speculation game to be a bit odd. He says,
But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.
Essentially, he’s suggesting that the Dow can only move upward – eventually! – but he does not provide any reasonable justification for this belief. He’s careful, here, to not give out strict advice because it makes him uneasy. So he’s telling us that the profits will be there in “5, 10, and 20 years.” Is it 5 or is it 20? Or anything in between? Or more than 20 years? Of course, no one knows, but to middle-class Joes it makes a heck of a difference whether it’s 5, 10, or 20 years, or even at all, because most of us don’t have the cushion to be wrong (and 20 years off the mark), as does Warren Buffett. Twenty years can be almost a half of one’s working life in the middle class, and that kind of time is not available to most people to find out whether or not they won or lost the roll of the dice.
The supermajority of the population cannot ever have an investment strategy like that of Warren Buffett. We can take much (and I do) from his value-investing blueprint and sensible roadmap for avoiding speculative pitfalls while engaging serious investment analysis. But Joe the Plumber and his friends cannot afford to gamble away their financial futures on the hunch that the stock market “can only go up.” On BubbleVision the other day, two desk jockeys also questioned Buffett’s BUY advice – amazing! – and they noted that since he’s working on a much larger scale than the rest of us, how does his top-level recipe for success apply broadly to a populace of terrified people who are losing big on a lifetime accumulation of wealth?
The answer is that it doesn’t apply. That is to say, amateur “investors” (they are really speculators) cannot apply his big-picture advice because every person he speaks to about the “long term” has a unique age, time to retirement, ability to save, and capability to bear risk.
In retrospect, Warren Buffett’s posture on political issues shows us that in spite of being a remarkable value investor, he has sanctioned collectivist state hysteria and policies from climate change to taxes to fiscal policy. In fact, his nod of approval for some of government’s most destructive taxation tactics has clearly distinguished him as an unabashed redistributionist.
Finally, Mr. Buffett presents us with “a little history” when he notes that:
During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent.
I’d like to extend that history. The Dow did hit 41 in July 8th, 1932, after plummeting from a high of 381 on September 3rd, 1929. However, the Dow did not get back to 381 until November of 1954, twenty-five years after the peak. But we are supposed to believe that things are different now. The Dow is a predictable and perpetual bull ride. In fact, every so-called expert” in the media has declared that another Great Depression can never occur because, after all, “the fed has our backs.” They have all the right safeguards in place to assure us that such a catastrophe can never happen again.
The Fed has intervened on a massive level not seen since FDR’s New Deal takeover of the economy. They don’t have our backs, they have our balls. Certainly, we have come to expect FDR-style fascism on steroids from the ratfinks who have co-opted the ranks of the current regime. On the other hand, Warren Buffett’s unequivocal endorsement of Washington’s ruling class and its scheming agenda to lure the middle and lower classes with the promise of financial bread and circuses is a sign that we must not trust Omaha any more than we do Washington D.C. or Wall Street.