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.