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The World Is Upside Down: CIO Of Buffett's GenRe Issues Direst Warning Yet
A world, in which former permabears David Rosenberg, Jeremy Grantham and now Hugh Hendry have thrown in the towel and gone bull retard, and where none other than the Chief Investment Officer of General Re-New England Asset Management - a company wholly-owned by Warren Buffett's Berkshire Hathaway, has issued one of the direst proclamations about the future to date and blasts the Fed's role in creating the biggest mess in financial history, is truly upside down.
While the topic of CIO John Gilbert is Twitter, and specifically the investors in the second coming of the irrational exuberance bubble, about which he says that "following such a crowd is an excellent hedge against ever being financially independent. Gravity wins in time"... what Gilbert is really talking about, is the Fed. To wit:
It should be obvious to everybody by now that such stock market largesse is made in Washington. The specific address is the Eccles Building on Constitution Avenue, home of the Federal Reserve. In fact as citizens and U.S. taxpayers, we think it would be an expression of gratitude if Twitter were to take a little pressure off of the Fed and buy some Treasury bonds themselves.
...
We may be seeing the leading edge of a wave of credit problems among corporate borrowers in emerging market economies. Lest one think it does not affect the U.S. and other developed market countries, recall the Asian crisis chronology. Thailand devalued its currency in the summer of 1997 and few outside of Thailand cared. But contracting Asian demand reduced demand for oil, and Russia (whose exports are 80% oil) defaulted in August of 1998. Risk spreads widened, and five weeks later, Long Term Capital Management was insolvent. That was a systemic event and caused disruption in markets in general, and a stock market decline. So for those who believe that they are protected from loss by central bank behavior, a little history is in order. As usual.
...
This is a major component of the downside to the Fed’s program. They have created a systemic risk in the world financial system for which they take little or no responsibility, because that which happens outside the U.S. is not their assignment. But as custodians of the reserve currency, it ends up that way.
Since we obviously agree with everything the GenRE CIO says we can only assume with absolute certainly that he does not speak for his ultimate employer: the man who according to many has benefitted the most from the Fed's largesse: Warren Buffett.
Full letter below (pdf)
History Ignored, Again
It would seem fair if Twitter were to share. The company’s initial public offering was a staggering success, of course. Priced at $26, the stock closed its first day of trading at $45 per share. The company was thus endowed with a market capitalization of $25 billion. The company has no earnings, but who cares. Adding back non-cash charges to produce earnings before interest, taxes, depreciation and amortization, then adding back the financial value of non-cash employee compensation, the company can be regarded as profitable. Such a number for 2013 may approximate $50 million or so. The company is valued at 500 times such results, which exclude expenses that do have economic value. Correctly accounted, the company makes not a dime. But who cares when circumspection is the investment equivalent of tuberculosis.
It should be obvious to everybody by now that such stock market largesse is made in Washington. The specific address is the Eccles Building on Constitution Avenue, home of the Federal Reserve. In fact as citizens and U.S. taxpayers, we think it would be an expression of gratitude if Twitter were to take a little pressure off of the Fed and buy some Treasury bonds themselves. But that is not our remit, the company would reply. We are here to, well, Twitter.
Happily, not all members of the U.S. government are as pleased as the central bank to induce investors to behave foolishly. On the eve of Twitter’s IPO, Mary Jo White, chair of the Securities and Exchange Commission, offered cautionary remarks on investing in complex or inchoate technology businesses. The stock market ignored her, but her comments were well chosen.
We have seen this all before and it ends badly. Ms. White’s remarks were presumably pollinated by the lessons of history. By coincidence, in the same week that Twitter completed its offering, another tech firm reported disappointing earnings. That firm was Cisco, which was one of the belles of the stock market boom of the late 1990s. By the peak in early 2000, Cisco was valued at about $500 billion, which was 200 times the company’s then earnings. An impressive valuation, also. But back then, Cisco and brethren were going to change the world. Sort of like Twitter today. Chart 1 is Cisco, tracing out the dreaded where-the-Rocky-Mountains-meet-the-Great-Plains stock price pattern.
Cisco’s valuation has been decimated, and it trades today at only about 11 times earnings, a rather modest valuation, and a reminder that following such a crowd is an excellent hedge against ever being financially independent. Gravity wins in time.
Cisco’s discouraging recent earnings disclosure was particularly ironic, coming as it did in the week that Twitter led the Fed-driven market upward. That is because the company made pointed comments about a sudden deceleration in their businesses in many emerging market economies in the last few months. This is not only a cautionary tale about the uncertainty implicit in technology businesses. We fear that it may precede more such news from a number of firms and emerging countries that have benefitted from the same central bank policies of which Twitter is the lottery winner of the moment.
We applauded Fed Governor Jeremy Stein when, in his paper of February of this year, he broached the subject of unintended consequences of the Fed’s unconventional policies. We have long held that view. Governor Stein explored a number of evident candidates, including mortgage REITs and high yield bond issuance. One asset class that he did not discuss was emerging market debt issuance, which to us seemed then, and since, as even more important because of its systemic nature. Emerging market borrowers can borrow at very low rates in dollars, and have accepted the opportunity with alacrity.
When Chairman Bernanke broached the subject of reducing bond purchases back in February, long-term rates began a sharp rise that took the yield on the 10-year Treasury from 1.6% to 2.5% to 3.0%, where they remain. While such yields are low by historic standards, the change at the margin is significant. It has already retarded activity in the U.S. mortgage market, for example.
The most important emerging market borrowers have historically been sovereign governments, who could reduce their borrowing costs so long as the currency mismatch did not move against them. From time to time, it did, resulting in such borrowing being referred to pejoratively as original sin in international finance. But at least those were sovereign governments.
An alarming feature as the current credit cycle has developed has been the rapid growth in borrowing by emerging market businesses. Many emerging countries have had boom conditions over most of the period since the Asian Financial Crisis. China’s accession to the WTO in 2001 was followed by a massive investment program that provided a massive and rapidly growing market for the exports of many other emerging nations—and the businesses that produced the coal, steel, copper and cement China required. The Lehman bankruptcy was an abrupt interruption of the boom, but China’s response was a redoubling of investment to overcome the financial crisis. So China’s demand for imports surged again, much of which was satisfied by emerging market vendors from Brazil to Indonesia to Africa.
Those boom conditions coincided with the Fed’s everyday low price interest rate policy. The temptation to borrow in dollars at low rates, and take the chance on exchange rates, was evidently too powerful for many corporate borrowers. In fact, at the time, the currencies were moving in their favor. Booming exports made for resilience, or even strength, in their currencies against the dollar. Borrowing in dollars seemed to make all the sense in the world.
The result was a boom in borrowing to match the boom in business. Chart 2 shows the increase in dollar—denominated borrowing by corporations since the Asian Financial Crisis in 1997–1998. It has exploded since the Federal Reserve has suppressed borrowing costs in the last five years.
The result of this roaring issuance is that debt ratios have risen to a level not seen since the Asian Financial Crisis of 1997—1998, as shown in Chart 3
This might be disquieting, but not necessarily troublesome, if the currency mismatch were not an issue. But shortly after Bernanke’s suggestion in May that the punchbowl might be removed, capital began flowing out of the hot emerging markets. The result was downward pressure on their currencies, which in some cases is severe. Chart 4 shows the change in exchange values versus the dollar for a number of affected emerging countries.
The systemic nature of the problem—booming debt issuance in dollars, followed by contemporaneous currency shocks in response to Bernanke’s comments in May—coincides with the sudden slowing in demand for Cisco’s equipment and, perhaps, others as well.
This is a major component of the downside to the Fed’s program. They have created a systemic risk in the world financial system for which they take little or no responsibility, because that which happens outside the U.S. is not their assignment. But as custodians of the reserve currency, it ends up that way.
We may be seeing the leading edge of a wave of credit problems among corporate borrowers in emerging market economies. Lest one think it does not affect the U.S. and other developed market countries, recall the Asian crisis chronology. Thailand devalued its currency in the summer of 1997 and few outside of Thailand cared. But contracting Asian demand reduced demand for oil, and Russia (whose exports are 80% oil) defaulted in August of 1998. Risk spreads widened, and five weeks later, Long Term Capital Management was insolvent. That was a systemic event and caused disruption in markets in general, and a stock market decline. So for those who believe that they are protected from loss by central bank behavior, a little history is in order. As usual. Particularly for Twitter aficionados.
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I see you still have some passing respect for your body and mind. You'll get past that.
Ya know . . .every day, at the end of the day, I make a list. Usually on paper but not on light days, which are few. Prioritize the next day. I get satisfation from crossing off important things the next day. and there's always a new list and I forget the original point of my response because I got interupted at least a half dozen times before i got to type this sentence.
wait, someone explain this to me. a couple of debt ceiling cycles ago, the obama admin released some projected debt figures for the next decade or so. they had the debt going up to 25 trillion or so. if that's the case, i don't see how this is some unforseen problem that we are barreling toward. this is the plan. so there are guys getting cold feet. doesn't seem to be slowing anything down. i don't know what the end game is. but someone does. look at the smack on silver. look at the dumps on gold. like it or not, the job (as they see it) is getting done. things are remarkably distorted, but remarkably stable. the chicken littles just add a little volatility. looks like the fed is going to be printing for a while. go bulls.
Numbers....... Blah blah blah
EVERYTHING is rigged.
Which numbers do you have faith in.
Do some research and hope you get it right.
Make a decision and run with it.
History is particularly helpful, I find (think, hope?).
Smoke and mirrors. It will be interesting to see what happens when the Fed owns 51% of the Treasury market.
Yes then they print so much more quantifiably that they can lower borrowing costs and actually earn more - imagine 10 year rate at .09%. That is if their carefully built house of cards doesn't fall hard. I am betting on a protracted period of long dwindling interest rates. We have a lot of reserves and we are producing more and more daily. Most people are making ends meet even in this crafted market. Most of the 'big' wealth is lost and created to move the electorate. The bankers know this and can inflate deflate when desired ie gold/silver.
Lower rates are horrible for free capital but for those that have higher rated bonds, their value increases exponentially. Many of the unbought will be soaked into other vehicles and more and more sophisticated and leveraged vehicles will emerge as a result. Wall Street works the fear and greed as do all.
I liked the article too.
The globalists are in a world of hurt right now. Opposition to them and their policies are everywhere. From the simple minded King Lear types such as Buffet and Soros to the billions of poor and their racketeering politicians. The military and mercinary forces areturning against them. Crypto-currencies and China along with other governments are after them.
Where the hell they going to get the money to fight this kind of soft war. Buffet and Soros for starters.
It's a magical time for the stock market.
You gotta admit she had it goin on [a lot more] then, if ya mean LAS.
Q99, interesting times, eh? i was just thinking about this earlier. it's amazing how quick the cat has gotten out of the bag. the united states government is now operating in open defiance of the law, and public opinion. there is barely any nod torward truth or honesty. they are past that. globalization is clearly an all in project, and as things get more perilous, there just isn't time for PR. these are true believers, and while they are very smart, they are still betting on the wrong people. no disrespect to jews, but listen up. lose whitey, and you're sealing your own fate. you need us. there is no substitute, anywhere in the world.
And if you like Apple Twitter and Amazon, Jannet is just about to blow your socks off. You'll be able to buy any dart hole and make bucks.
Never mind what they will be worth.
Cisco provides a product that some smart people in the world (yes we do exist) actually produce something from.
Twitter provides a platform for idiots to speak to other idiots. I believe if it was the email platform it would be SPAM!
Yes Rooster, this seems to be metaphorical looking at the times we are living. Idiots are governing us. Idiots are buying idiot devices to have idiotic and pointless interactions. Even the idiots who can't afford such idiot devices are given such by the idiot government. Just too many idiots all around.
I propose when this all blows up ( hopefully before I die) we establish a line of demarcation defining areas where idiots are allowed to exist and the other hardworking intelligent workers who wish to rebuild this country may reside. A modern day Mason-Dixon Line if you will. This may be difficult because the idiots will soon realize they can't exist without the hardworking intelligent people and try to invade our space. This may take some serious fortifications. Maybe they can live off some central banker carcasses for a while if they don't die from poisoning.
Ok, I've had too much to drink when fantasies get this dark.
Miffed;-)
"I propose when this all blows up ( hopefully before I die) we establish a line of demarcation defining areas where idiots are allowed to exist and the other hardworking intelligent workers who wish to rebuild this country may reside."
Those areas are called "death camps."
That's pretty much everyone south of North Dakota.
"Cisco provides a product that some smart people in the world (yes we do exist) actually produce something from."
We are all so glad you think so, even if no one else does.
Cisco provdes the equipment which provides the network which links the twitter (and most other) platforms. Much like a telephone service, the content which passes over the network is the matter of the users ( just as our use here.
in reply to :
Trust officer today:"Might want to do something with that T-Bill that came in..."
Me "Let me get back to you on that."
Reply:
We'll give you .25%~ value US$ in the new "Global Dollar" (ie... yaun, gold-silver {yet to crash}, etc... or par on a real devalued global fiat!) for whatever and all assets you have left to allow you to survive as a soveriegn nation.
If you can't do that, well, then we really still "own" you, but you deal with your internal consequences!
ala Venezeula! The first domino.
For Buffett's CIO to warn us about what the Fed and Washingtois are doing is beyond hypocrisy. Yesterday, the govt gave railroads $600 million, most of it to Buffett's RR, to help carry oil since Obama has stopped the pipeline from Canada. I tell you, Warren has used and abused the entire market all to his benefit. Warren, I hope you realize there will be a an eternal reckoning, but not from this socialist gov.
Its all being play like a fiddle now, ...
1.) USD bad, FED bad...
2.) BIT-COIN good,
Some kind of New World Order is coming soon, and all the 'rich guys' are trying to look progressive.
If you all actually studied "Grand Popular Delusions", then you would know that "New Ideas" make strange bedfellows, it was the same during South Sea Bubble and Tulipmania, ...
***
The peat & repeat of QE, and such is so fucking boring here, its fucking silly. It can't stop, cuz the QE (FED MONEY) is the only buyer of US-DEBT, and given that +60% of the public feed at the pig-trough, thee money has to come somewhere.
I personally guess that some 99% of the SNITS(adolescent thumb suckers) on ZH are indirectly on the fucking USD dole, ... so its fucking hypocrisy of the first order to DISS 'QE', but at the same time suck on the gumbint tit.
You know, the older I get, the more I appreciate Dante.
Damn those who bitch about the Fed and skip the part about the neatly and intelligently designed organization that could shut the Fed down in an instant.
You are part of the problem; a quite serious part.
As the old saying goes, if voting changed anything, they'd make it illegal...
I have said it before and will state here again....Warren Buffett will not be looked on kindly in a historical context. How so? Very similar to Joe Paterno. Decades of perceived success followed by the truth coming out what type of character the man had at the end. Then he dies a ruined man. Its coming. Soon.
This being spewed by one of his lieutenants will not change that fact.
This may be old news by now, but here is an interesting take on the crash and death of the dollar as planned.:
http://www.youtube.com/watch?v=k_jZ-Nmx9lU
Bottom line: Two year time table to get out of the dollar?
Sez to Maybelle, hey darlin, weza gotta go to china or russia to get some more paper money-god to bring back to America to spend at the govt cheese stores. Sure wish it was not a shoot on site law for the handling or brandishing anything made of silver, or gold. The two and a half tons grand pappy buried and died protecting sure ain't doing the family any good now. Darn.
So.... Buffett's mouthpiece has had enough of the games and is starting to reposition? Buffett has been selling stock for a while now. Must be getting impatient at his age. Don't blame him. The guy knows his stocks and wants to see the final and full blown meltdown before he passes. Otherwise where's the excitment?
R1>enable
R1#conf t
Enter configuration commands, one per line. End with CNTL/Z.
R1(config)#ipv6 unicorn-routing
R1(config-router)#ipv6 router rip ASS
R1(config-rtr)#int g0/0
R1(config-if)#ipv6 rip ASS enable
R1(config-if)#end
Grandpa, during the media witch hunt over your secretary and how you needed to redistribute our family wealth for short term gains for global industrialist to develop new infrastructure under new taxpayers contributions. What happened Grandpa? Your milk and cookie bedtime stories have a different story ending.
There's an old tradition among old New England families. It's called keeping the money in the family.
Washington DC and its fans have run out of friends. Good.
Sooo are we getting a pattern yet with some figureheads proclaiming things are getting messed up?
The bailouts since 2008, the fed policies since 2008 have resulted in the world's greatest and fastest wealth transfer to the top. It can not be argued, facts say that 95% of all income gains since 2008 have gone to the top 1%. Have they worked harder, created more industry, more ground breaking technology, changed the world? Fuck no! You know and I know it, all they have done is sit back a feast off of government and especially Fed policies. Savers have been destroyed while speculators have been rewarded. The financial enginners are actually back creating new rent payment backed securities for sale on the street.
The Federal reserve has funded the stock market by nearly 100 billion dollars a month. This is a fact, it is beyond dispute. We will soon experiece a train wreck. The trigger could be financial or political or even on the growing geopolitical battle fields. Syria, Iran, Ukraine, The China sea.
The world financial system now works for itself, it does not serve the real economy, the indutrial or technological economy. Financial engineers, speulators and money printers are in a death dance on top of the heads of the workers, the savers and the small business people. Don't think so? Don't buy it? You then are probably not a worker, a saver, in industry or most of all in any small business faced with the alliance of mega corporations with the government they own and control.
Bush said "This sucker is going down". It is, and it will be epic. It will be a world changing collapse, on a par with the fall of Rome. It is that epic. Capitalism is dead, fascist crony capitalism is in charge. It's fall will be a blood bath.
Bullish?
long nazi uniforms.
When they talk about "financial stabeelitee", they really mean keeping dead bankrupt banks, corporations, and governments alive with free cash and credit/debt, and the postive cashflow of the 1% intact (the 95% gains you mentioned), "whatever it takes".
I am pretty sure it is all going according to plan.
Gordon Lightfoot "If you could read my mind"
March, just March
The World Is Upside Down
We know,, take a seat
Stats and charts and thousands of words aren't needed to see what's happening, common sense will do it.
Massive amounts of printed dollars poured into the bond market to keep prices up is gonna destroy the US dollar sooner or later. When USD busts, America busts.
See, no stats, no charts, and just shy of 30 words.
FUCK YES WARREN BUFFET is one of the biggest ASSHOLE's in the world
He changed 'insurance' to the NEW MODEL, before BUFFET took over USA insurance a long time ago insurance meant something, but now under BUFFET insurance just mean pay premium and collect nothing,
FUCK BUFFET, and his talking head's on their payroll.
Obviously BUFFET is now on the BTC bandwagon, there is no other possible reason for him to DISS the FED/USD as the fucker as been a CORPORATE WELFARE WHORE since the 1950's, just like Ross Perot.
Ya know...distractions distractions distractions. Bread and circuses. Diggity underground...fast!
If this good heart is correct, the world is going to be upside down alrighty-oh!
http://www.youtube.com/watch?v=8Jk9RhTJX1k
Here comes the Lord?
Talking your book is so 2012.
Nice Qcard.
Why do so many want to kill Americans?
Clue "This is a major component of the downside to the Fed’s program. They have created a systemic risk in the world financial system for which they take little or no responsibility, because that which happens outside the U.S. is not their assignment. But as custodians of the reserve currency, it ends up that way."
Yea the ship is sinking. More QE to the rescue.
Its OK, "Nobody could have seen this coming". No harm no fowl. Now, how is that bonus pool shaping up this year?
as long as moody's stamps the whole thing AAA all will be fine. if not there's always the gubbermint and teh fed.
... and so the set-up continues (IMO). We are being played like an out of toon banjo. The music goes on, but it sounds a bit off. Also IMO, the Fed WILL be publicly blamed for the next planned crisis in 2015 (odd how the world has gone from 10 years ago pretty much not knowing or caring that the Fed exists to today where the Fed is a center of attention ... and web sites, such as ZH have been instrumental in that ... coincidence?) and my "guess" is that will lead to the dissolution of Fed in 2022, which will create the crisis after that. In the meantime THEY will be pumping their 100% electronic global fiat currency as THE solution (BITCOIN, after an test/introduction in the alternative will go full-retard manstream) ... and the interesting thing about that is it is and will be easy to see who are the manipulators and who are the dupes.
Just because we "can" do something, does not mean we "should". First we are taught and then we are tested.
LOL...the Cisco chart is great...
So Warren Buffet is selling calls on the S&P. That is all I hear.
They have created a systemic risk in the world financial system for which they take little or no responsibility, because that which happens outside the U.S. is not their assignment. But as custodians of the reserve currency, it ends up that way.
And Gold is down? What a fraud!
Moby Dick; Ishmael & Queequeg; Elijah prophecy
http://www.youtube.com/watch?v=sVK9aaTEWbE
.
Please Warrren, just die already. The world will be a much better place without you.
Uh oh, John Gilbert must have missed Warren Buffet’s speech at the University of Disneyland where he called the Fed the greatest, most profitable hedge fund on the planet.
Someone is going to get his pass to the private Board Dining Room yanked.
Either that or he and Warren just got back from the latest Goldman sponsored seminar on how to use Twitter to manipulate markets. I hear Carl Icahn was the keynote speaker.
Bringonthe asteroid. I appreciate your passion and your idealism. But even as you question the intellectual honesty of thesists, I question your intellectual honesty on two points.
1) If a sane just world is what you seek, then how exactly does the atheist worldview produce this? TPTB, the global communists, and the authoritarians that use religion as moral cover all share your worldview. Nature is cruel, and interspecies violence is common. So if that is how the world works...then why not play ball? Sounds like your invitation to be in the club that lives off the misery of others may have got lost in the mail.If you join the CFR or the communist party of x, maybe they will resend it so you can live in beneficient harmony with the real external world. If not. Why not? And how does that why not jive with your atheist worldview?
2) Your scathing contempt of abrahamic religions misses one key point. Jesus was not a Christian. He stood in a culture dominated by a roman Global superpower in a region ruled by an Abrahamic theocracy. And he stood against them both. He taught that there was a higher loyalty and a higher moral code than government or religion and that people were ultimately accountable to live by that higher code regardless of the instructions of governments and/or religious leaders. When the movement that Jesus started was hi-jacked by the romans it turned into Christendom which is now labeled Christianity. It has little resemblence to what Jesus taught or how his early followers lived. There are an increasing number of liberty loving people of faith who are intellectually honest follwers of Jesus. Their writings are intellectually honest and they are taking action to reduce complicity with authoritians who hide behind all sorts of moral cover. I think you might actually like them...But you'd have to drop your scathing disdain in order to find out.
http://durablefaith.com/2013/08/19/wakeup-growup-standup/
Jesus was a christian, he just didn't know it. His last name was Christ for Christs sake. Humans inhale oxygen and exhale carbon dioxide, it took Joseph Black to tell us (16th century)after the religous zealots in England threatened his life, but this doesn't mean he was born from the O god. Does it?
The highest moral code is humanism. Humanism isn't defined by precambrian external mystical force (s) > that created the earth in 7 days or who can mutter the most somnambulant incantations the loudest in public on a "holy" day. Being Christlike is being a fraud. Fine, Jesus was born of a virgin (if you insist). This doesn't make him the son of a cosmic god. It makes him a son of a bitch for lying to his followers. The means to the end IS important, not just the end. It would have been more humble for Christ to leave the whole "heaven as a reward" carrot out of it. This could have seperated the morally fatuous from the real humanists.
Sane would be boring, ZH's want accountability. Astute ZH's "downgrade" all the bullshit commentary from the plutocracy. Jesus was not a teacher of morality. Cheers to you for "finding" your morality through Christ. "Ring another sale up Dad"! Don't forget...15% of your earnings to your favorite morality fear mongerer.
Try this for morality;
http://www.amazon.com/Mays-Window-Mr-Craig-Reger/dp/0615590578/ref=sr_1_...
So Humanism, the moral cover used to justify of progressivism and collectivism is going to keep us from authoritarianism? The UN seems to differ with you on that one...
Your kidding...right?
Keep striving for authority. You and authority deserve each other.
Regarding Cisco. I cannot understand why almost everyone, popular press or otherwise, continue to ignore the end consumer of Cisco products. Who is that? The IT recommender. Picture yourself as the IT chief in a company in, say, France, or some other non-U.S. country. Think of yourself recommending a piece of hardware with embedded proprietary software (firmware) which you can't see and can't therefore verify the security thereof, for handling all of the Internet packets transiting your company. You're aware that the US gov snoops are likely to have a back door into that firmware, a certificate key, a cracked code, etc., since most of the non-US press (particularly Asian) has extensively reported same. Would you recommend a Cisco router or an open-source router? It's a no-brainer. Room::Elephant.