Buffett's Move Marks the Beginning of the End
However, the big story for me today is Warren Buffett’s decision to buy BAC.
For starters, Buffett didn’t even spend 24 hours studying BAC before buying it. And I can tell you point blank that no one, certainly not Buffett, has a clue about BAC’s real balance sheet risk. The mere notion of due diligence or sound investing analysis here is absurd.
Moreover, the fact Buffett plowed $3-5 billion (depending on how the deal was structured) with so little research tells you what this was: a political move, and nothing more.
Truly you can’t even really consider this an “investment” since the deal Buffett got (which no one else on the planet would get) was so rigged in his favor that he can’t help but make some money off of it (at least until BAC collapses and is nationalized… of course Buffett’s stake would be made whole in that scenario too).
But regardless of his reasoning and fiscal prudence, the mere idea that Buffett’s purchase was a positive for stocks is absurd. Buffett bought Goldman Sachs in September 2008. How’d that work out?
I know Buffett is supposedly a long-term investor. Well, here we are three years later, and anyone who followed him into GS has yet to make ANY capital gains on their purchase. In fact, nearly three years later, they’ve LOST money.
So anyone who thinks Buffett’s decision to buy BAC is a positive for the market needs to get their heads checked. Buffett bought GS right before the entire financial world imploded!!! You think he somehow timed this purchase well?
No, this was a political move. The powers that be called on THE financial figurehead for the uber-bull crowd just as they did in September 2008 and October 2008 (the time of Buffett’s “Buy America” op-ed in the New York Times).
To be sure, the whole thing smells of desperation. The fact Buffett didn’t even buy BAC on the market but got a sweetheart deal only tells you how twisted the whole thing is (if he really thought BAC was a great deal why didn’t he buy in the open market like the rest of us “high tax payers.”).
As I’ve noted before, this whole situation is beginning to mirror 2008 in an eery way. We’re seeing the same idiocy playing out happening in the US and Europe (Buffett saves the day, banning the shorting of financial stocks, etc) as we did in 2008. The only difference is this time around the Fed will be powerless to stop the collapse.
Remember, the only thing that kept the markets afloat in 2008 was the belief that the Fed could backstop the financial system. This time around, it will be clear the Fed DIDN’T save the world. And the Fed will have no bullets left, except possibly a massive QE 3 move, but given the political environment in the US (see my earlier piece on Bernanke stepping down), it’s not even clear the Fed will be able to do that.
In plain terms, I fully believe we have entered the Second Round of the Great Crisis: the Sovereign Default Round. The First Round (2008) was just a warm-up. This time around, we’re going to see entire countries go bankrupt along with stock crashes, civil unrest, food shortages, bank holidays and more.
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