Sunday, October 5, 2008

A Fascinating Warren Buffett Interview

The $700 Billion Paulson Plan forced many oligarchs on to television, to promote the bill. Carlyle Group's David Rubenstein appeared on CNBC and Warren Buffett sat down for a one-hour interview with Charlie Rose.

Despite the fact that Buffett has gone over to the dark side by, among other things, aggressively pushing for the Paulson Plan, while he will personally benefit, most obviously, through his recent multi-billion dollar investments in Goldman Sachs and General Electric, he is still a great investor and there are some fascinating observations he makes during the interview.

First, one has to be amazed at Buffett's command of facts. You can see from this understanding of facts part of why he is a great investor. He simply knows more than most investors.

During the interview, he mentioned, for example, that the crisis to date has resulted in the shifting of bank deposits from one institution to another, to the tune of 8% of all bank deposits. Who else in the world knows it was an 8% shift? In passing, he also off the top of his head mentions these data points: The real estate market is roughly a $20 trillion in size, as is the stock market. That Americans import $2 billion per day more in goods than are exported from the U.S. and that at the time of the interview Treasury Bills were yielding .2%.

On another note, he does mention that all the bailout activities will result in higher inflation. A very important warning.

It can be seen that he is also a great communicator. In his easy going "Farmer Joe" posture, he is disarming in getting his message across.It is even difficult to pick up the purpose of the interview. That is until the very end of the interview when Charlie Rose recaps key points, which all happen to be about why the Paulson Plan is a good thing. Rose knows, of course, that he has to make clear the points Buffett really wants to get across, if he ever wants to see Buffett on his show again.

A few other points from the interview.

Buffett doesn't seem to understand business cycle theory, even though he mentions that there are slowdowns in the auto, furniture and jewelry businesses--all in the capital goods area (High end jewelery is a capital good). All of which would be expected given Austrian Business Cycle Theory But, Buffett fails to make the point that these sectors are where weaknesses in the economy would be expected during a downturn.

Buffett also gets on his soap box re: his call for higher capital gains taxes, which clearly indicates how little, at some level, he understands about the importance of capital goods in raising a country's standard of living.

Also note that Buffett emphasises that any mortgages purchased should be at market prices, not face value, which means in no way does Buffett see this as a bailout for banks in trouble. The mysterious goal of unfreezing junk paper as justification for Paulson's $700 billion request remains intact.

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