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Mr Buffett, the ultimate bargain-hunter, is having the time of his life
In one important sense, Mr Buffett, the ultimate bargain-hunter, is having the time of his life. He has found deals, at extremely favourable terms, with some of the world’s best-known and respected companies, including General Electric, Goldman Sachs, Wrigley, Dow Chemical and Harley-Davidson.
“In his younger days, whenever the market crashed he never had enough money,” said Alice Schroeder, author of The Snowball: Warren Buffett and the Business of Life.
“This is the first time in his career he’s had enough capital to take advantage of the opportunities presented to him.”
His latest – this week’s £2.6bn investment in Swiss Re, the struggling reinsurer – will pay Mr Buffett hefty annual interest as well as giving him the right to raise Berkshire’s stake at an attractive price.
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Seeing a three-month T-bill that involved a small amount of negative interest, Buffett joked that the mattresses sold by Nebraska Furniture Mart were a better place to put your money. Presently there is a bubble in U.S. Treasury securities. Credit spreads have gone from far too narrow a couple of years ago to far too wide today. Money can be made shorting Treasuries and going long corporate bonds, provided you can play out your hand. Excessive amounts of leverage used by hedge funds have resulted in enormous losses from sensible bets because players could not play out their hands.
Buffett told a silly joke about how tough things were in the financial sector. “I know off a Wall Street investment banker who got no bonus this year. He came home and told his wife that they’d have to really cut back. “If you could learn to cook,” he said, “we could lay off the kitchen staff.” She replied, “If you could learn how to make love, we could lay off the gardener too.””
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“Berkshire Hathaway has made big insurance investments. Is Berkshire apt to get into health insurance in a big way?” “No,” Buffett quickly replied. He does not want to get into types of insurance where buyers may not understand what coverage they have or can expect. Harley Davidson bonds should do well. “It’s a wonderful business when your customers are willing to tattoo your name on themselves,” Buffett said.
“Will the stimulus package work?” Buffett said that monetary policy has been exhausted, and classical Keynesian fiscal policy stimulus is all that’s left. Proposed fiscal policies are much better than sitting back and doing nothing. However, the power of fiscal stimulus is limited. When FDR took over, for example, he had an unlimited ability to get things passed quickly. While the U.S. unemployment rate fell from 25 percent to 9 percent by 1939, the U.S. economy never fully recovered from the Great Depression until World War II. Today, we could have the Federal Government put everybody to work making capital equipment, or battle ships, and take them out into the ocean and sink them, but that would not be as beneficial as current plans to stimulate the production of capital goods and services that will be used over time. Still, Buffett admonished, we have to be careful. “When it comes to economic policy, you never do just one one thing at a time.”
On okbridge.com Buffett is “T-bone” while his friend Bill Gates is “Chalenger.” (With one "L") “Bill Gates dropped out of Harvard during his junior year,” Buffett said, “apparently, spelling is a senior-level course.”