Monday, August 24, 2009

Warren Buffett - the ultimate bull-market manifestation

Warren Buffett is not an expert at value. Value is non-rational and relative. Nobody is an expert at value since it does not exist. (just look at the 150 pe for the SP500 as an that value now? is it value at 7? Either answer is equally inaccurate since they are both totally arbitrary.)

Warren Buffett is not an expert at  derivatives trading.  He sold billions of dollars of puts on the SP500, FTSE, Nikkei and Stoxx indexes right near the top of the market. There is a difference between being right and lucky. And though my view is that Buffet has more skill than just luck...he has primarily been the beneficiary of luck not skill.

He has written $37.1 billion worth of puts on four stock markets, he has sold SP500 puts (US market), FTSE 100 (UK market), Nikkei 225 (Japanese market), and the Euro Stoxx 50. Some of the contracts come due in 15 years and others in 20 years. They are all European style, they cannot be exercised before expiration. The reckoning is when they expire.
As an example, BRK-A may have written $1 billion on the SP500 when it was at 1300 and received $100 million - $150 million in premium to use for the next 15 years. If in 15 years the index is at 1170, down 10%, BRK-A would have to pay $100 million. If it is above 1300, they pay nothing.
Buffett continues to rationalize his holdings and trades. He continues to play out his own psychological patterns. And most important, he is now a victim of societies psychological patterns in that his decisions seemingly leave him no choice but to try to rationalize his actions and thesis rather than do something about them.

Certainly, his assumptions can not be made viable or rationalized based on the action of the markets. There has to be some other explanation or causality doesn't there? But isn't it the same story all the time, whenever the gig is up - people always resort to "...but its different this time, its not what it seems, everything will be ok". Well, i never thought I would be saying this about Buffet - but that's exactly the prism he is using to rationalize his situation.

Methadone anyone?

In my book, lucky is being on the right side of the credit-inflation story and playing the fiat game well on the way up. What is not lucky is trying to play that same game when the fiat system is dissolving before your eyes. But success via fiat is a high very much like, I guess, heroin or crack...great when you have some - but terrible when you don't. Buffett is addicted to the fiat system and his high is just starting to dissipate. Soon, he will be looking for replacement therapy. Methadone anyone?

Berkshire Hathaway can not sell its assets - too big to fail?

Buffett/Berkshire Hathaway can not sell assets since that would set off a panic before they were even out of 10% of them. Buffett can not back out of his puts because he thinks that using the billions in premiums that he has collected will allow him to survive the loss. What happens when he can not do either? Is Berkshire too big to fail too?

So, what is Mr. Buffett's current investment technique? 

He's become a promoter and a prop for the fiat money system. Masquerading as the last remaining real Bull-market success-story cheerleader, he's trying to convince everyone who will listen of marvelous and imaginative stories. For example, that his old ways (yes the lucky ones he used in the past) are the best choices, that the dollar is going to go in the tank, that holding cash for the last 8 years decreased your purchasing power. Much better to promote your own bubble manifestations like Well's Fargo, Bank of America, Conoco Phillips, GE and Moody's.

What I find truly sad and disingenuous is that he has resorted to promoting himself and his distortions via a structured public relations campaign. Specifically he:
  1. has been used as a prop by Bernake and Paulson - obviously for his own benefit. 
  2. is directly lying to people through his Op-ed and interview efforts. 
What's more, he most likely is keenly aware of these facts. The only difference is that he has to lie in order to save his empire. If you were in his position you would most likely try to do something too rather than just watch the whole thing fall apart - even if it were crossing the line a bit. If Buffett tries to exit stage left he becomes a victim of his own bull-market demagogue status...everyone will try to exit with him. If he lies...he can simply say he was wrong but tried.  (I think Barney Frank uses that technique a lot - but maybe its just most politicians)

I wish the man no ill will, but when he is advertising that the worst possible investment is Treasuries or cash for the future and that if you held cash or Treasuries over the last 8 years you lost purchasing power - there is no simpler or bigger manipulation of the facts or truth. What's more Mr, Buffett knows it.

Holding cash without getting interest from Treasuries entitles you to nearly double the purchasing power that you had 6 to 8 years ago. Holding stocks which he flatly states is/was the correct strategy has decreased your relative purchasing power by around 20%. This is a net difference of 70% and my numbers are conservative...How could Buffett be that bad at math and run an insurance company - isn't all they do basically fudging with numbers? The answer is he is promoting a scam and he knows it. Why? Because he is likely a victim of that scam if it fails and can not get out if it does. If our currency system is a ponzi scheme (which it is) then Buffet has bought in hook line an sinker and will promote the fraud all the way down even if he has to lie and distort to do it.

What a down it will be for Berkshire and Buffett. A high climb becomes a long fall. People remember the fall much more than the climb when judging history - especially when they have no money left.

Dollar in the tank
The thesis that the dollar will go into the tank is a credit-inflation manifestation. The dollar is already in the tank - its down over 96% since the Fed took over managing inflation (if you want to call it that)...i mean protecting the dollar. But isn't it ironic, people are sure the dollar will go in the tank when it only has a few percent to go to get to zero. I am sorry to inform Mr Buffett - the dollar is already in the tank and maybe it wants to go up now for a few years. 38% retracement anyone?
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