Most people believe that Warren Buffet is a sage when it comes to economic and finacial matters. That may have been true decades ago, but lately Buffet has a less than perfect record of picking the direction of the economy and the stock market. Consider the following two Barron’s articles published in March and October of this year:
“In the equity-derivatives market, Berkshire has taken in $4.5 billion in premiums for selling at-the-money puts on the S&P 500 and three foreign equity indexes, with original terms of 15 to 20 years and distant expiration dates between 2019 to 2027. With this bullish bet, Berkshire will pocket the entire premium, plus investment income on the $4.5 billion, if the relevant equity indexes are above where they stood when the company sold the options. A put sale allows Berkshire’s counterparty or counterparties to sell the indexes to Berkshire at the option maturity dates. This is a huge option trade because the puts apparently involve a $35 billion notional amount of stock indexes. The trade looks shrewd because these so-called European put options can only be exercised at maturity. Barring a credit downgrade, Berkshire probably doesn’t have to post margin collateral against the puts if the trade goes against it in the interim. The odds are the puts will expire worthless, because the S&P and other indexes tend to rise over time.”(Barron’s – 3/10/08)
“Buffett’s Berkshire equity portfolio, which stood at $69 billion on June 30, is falling in value, although it’s ahead of the major averages this year. Berkshire has written, or sold, long-dated put options on some $40 billion of equity indexes, including the S&P 500. Those put sales, which amount to a bullish market bet, are deep in the red, although Berkshire doesn’t have to post collateral against any paper losses. We estimate those puts could have cost Berkshire as much as $2 billion in the third quarter and several billion more dollars this quarter, with the S&P down over 20%. Berkshire ultimately may score with these puts if they expire worthless at maturity between 2019 and 2027. But the normally savvy Buffett made a mistake investing in financial derivatives, about which he has long warned. Berkshire had no comment. The brutal market sell-off has stung even famed investors like Buffett.”(Barron’s – 10/13/08)
Warren Buffet made a massive, risky, bullish bet on the stock market, and it is coming back to haunt him big time. And let’s not forget that another of Obama’s economic advisors is Robert Rubin, who, after serving as Clinton’s Treasury secretary, became a Director and Senior Counselor to Citigroup, and was instrumental in overseeing the collapse of that banking institution.
Then we have Paul Volcker, former chairman of the U.N.-appointed Independent Inquiry Committee into the Iraq Oil-for-Food Program. His unwillingness to draw unfavorable conclusions regarding the actions of U.N. Secretary-General Kofi Annan and his son, Kojo Annan, about allegations of impropriety in the oil-for-food fiasco, should give one pause. It was obvious to all but the far left that mismanagement, incompetence, and unaccountability at the U.N. was rampant. All we need now is for Volcker to protect Obama and his economic prescription for the country the same way he protected Annan.
These are not the people we need advising the President for the next four years. What happened to the “change” that was coming. We seem to be recycling some old retreads.