Warren Buffett (THE market guru) and his Vice-Chairman Charles Munger spent 6 hours answering questions at a Shareholder meeting on Saturday.
They addressed a number of issues but the two that I found most interesting relate to Real Estate and the Trade Defeicit (and the impact on the dollar).
I personally think that when the poop does hit the fan, all of these things will act like a catalyst to each other. A real potential house of cards, if you will. As referenced in many other diaries on these topics, the impact of other global events also play a role such as the price of oil, instability in the Middle East, China and on and on.
I get the impression that Buffett is probably biding his time for when the floor caves in to start scooping up assets at incredibly cheap levels. Maybe I should start saving now to try and do the same thing..... The term, "Catching a falling knife" comes to mind though...
The CNN Money article that covers this along with some of the other issues they discussed is here:
http://money.cnn.com/2005/05/01/news/fortune500/buffett_talks/index.htm
On the Real Estate bubble front, here are a few snippets that I found most interesting:
Buffett: "Certainly at the high end of the real estate market in some areas, you've seen extraordinary movement.... People go crazy in economics periodically, in all kinds of ways. Residential housing has different behavioral characteristics, simply because people live there. But when you get prices increasing faster than the underlying costs, sometimes there can be pretty serious consequences."
Buffett: "I recently sold a house in Laguna for $3.5 million. It was on about 2,000 square feet of land, maybe a twentieth of an acre, and the house might cost about $500,000 if you wanted to replace it. So the land sold for something like $60 million an acre."
Munger: "I know someone who lives next door to what you would actually call a fairly modest house that just sold for $17 million. There are some very extreme housing price bubbles going on."
On the trade deficit, some more interesting comments:
Buffett: "There are more people [like hedge-fund managers] that go to bed at night with a hair trigger than ever before, it's an electronic herd, they can give vent to decisions that move billions and billions of dollars with the click of a key. We will have some exogenous event, we will have that. There will be some kind of stampede by that herd....
"When you have far greater sums than ever before, in one asset class after another, that are held by people who operate on a hair-trigger mechanism, then they lend themselves to more explosive outcomes. People with very short time horizons with huge sums of money, they can all try to head for the exits at the same time. The only way you can leave your seat in burning financial markets is to find someone else to take your seat, and that is not always easy...."
Munger: "The present era has no comparable referent in the past history of capitalism. We have a higher percentage of the intelligentsia engaged in buying and selling pieces of paper and promoting trading activity than in any past era. A lot of what I see now reminds me of Sodom and Gomorrah. You get activity feeding on itself, envy and imitation. It has happened in the past that there came bad consequences."
Buffett: "I have no idea on timing. It's far easier to tell what will happen than when it will happen. I would say that what is going on in terms of trade policy is going to have very important consequences."
Buffett to Munger: "What do you think the end will be?"
Munger: "Bad."
Buffett: "We're like an incredibly rich family that owns so much land they can't travel to the ends of their domain. And they sit on the front porch and consume a little bit of everything that comes in, all the riches of the land, and they consume roughly 6 percent more than they produce. And they pay for it by selling off land at the edge of the landholdings that can't see. They trade away a little piece every day or take out a mortgage on a piece.
"That scenario couldn't end well. And we, also, keep consuming more than we produce. It can go on a long time. The world has demonstrated a diminishing enthusiasm for dollars in the last few years as they get flooded with them - every day there's $2 billion more going out than in. I have a hard time thinking of any outcome from this that involves an appreciating dollar."