Friday, October 24, 2008

Charlie Munger Joins His Partner in Crime, Warren Buffett

Charlie Munger gave a speech last night were he echoed his long term partner's Warren Buffett stance on the stock market. He makes some valid points. He is older, wiser, has a longer track record, and is more successful than I am. I have repeatedly said that I think we are at or near a multi month bottom. The market does not want to go down anymore. You can feel it. I disagree with Buffett and Munger that this is the ultimate bottom for the next two years. It is obvious that Buffett and Munger are putting very low probabilities for a depression. This is based on the fact of the massive government intervention. I put the probabilities higher than they do. Either way 3 out of the 5 days this week I bought a little. It is a time to be looking for things to buy not sell. With that said, I proceed with extreme caution because I think the economy is going to be end up (9 and 12 months out) much worse than even Buffett and Munger expect. Thanks goes to Pete.

- The longest recession ever was 16 months. He thinks best case we entered into a recession in November of 2007 or worst case January 2008. This would put us well into the later half of the cycle, which will be painful but short.

- We are setting the base for a 10 - 15 year bull run. The stock market has never performed worse in the last 10 years, yet corporate profit expansion has never been better.

- The market will not rally until bond yields come down on the long end. Right now you should be in munis of solid states that are yielding 7% - 8% risk free.

- TARP will make money. Historical yields on toilet quality mortgage packages are well above the prices people are contemplating buying them. Really smart vulture guys are buying at the 50% - 60% levels. He and Buffet are also buying at these levels.

- We will see a healthy level of deflation before we see inflation. He predicted $50/barrel oil. Demand has been slowing for a year. As long as money velocity turns to favorable, government can pull out the excess liquidity before it becomes inflationary.

- The dollar has turned the corner and will rally from here against the Euro.

- Governments will drive LIBOR down to force interbank lending. Europe is much worse off than the U.S. in terms of bank health.

- Cash on the balance sheets or corporates has never been higher. If they all bought back there stock their P/Es would be trading at a 50% discount to the historical market average.

- He and Buffet are buying U.S. equities for their personal accounts.


Anonymous said...

Here is my prediction: stocks still look expensive, we are far away of a ten year bull market, economy will get worse than expected, fiscal deficits will be 1 trillion next year, dollar will crash and gold will rise as neither euro or dollar are safe haven(yield bonds may go down temporarily but bonds are heading for a secular bear market), what really scares me is if prechter prediction is right and us is heading for a real depression, it gives me the creeps

Market Seer said...

Well compared to what you are predicting I a not sure Prechter's scenario isn't better. At least there you probably still have a currency.

Anonymous said...

Where was this speech given?

Market Seer said...

A dinner in California....not sure what for (like what organization he was giving the speech for).

Anonymous said...

You may enjoy "The Four Filters Invention of Warren Buffett and Charlie Munger."
It explains and honors the intellectual partnership of two brilliant men. The genius of Buffett and Munger's four filters innovation was to "capture all the important stakeholders" in one "multi-variable" four step process.

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