On Oct 16, 2008, in what seemed America's darkest hour at least until a Chinese manmade virus escaped a Wuhan lab and killed thousands of Americans, forcing the Fed to nationalize capital markets and preserve social order by artificially inflating stock prices to idiotic levels based on the complete collapse in earnings, Warren Buffett came to America's rescue by frontrunning a multi-trillion taxpayer bailout of US banks when he penned a NYT Op-ed "Buy American. I am" in which he wrote "The financial world is a mess, both in the United States and abroad....So, I’ve been buying American stocks." And sure enough, Berkshire spent tens of billions of dollars investing in General Electric, Goldman Sachs Group, and many others as well as buying Burlington Northern Santa Fe outright.
And yet, for all his pompous poseur patriotism, the Omaha billionaire knew he was exposed to zero risk as US taxpayers would bail out the companies he was buying if it all came crashing down. In other words, what Buffett did not say at the time, is that he only "bought stocks" because he was frontrunning the largest bailout in US history.
Until now... when a newly merged Fed and Treasury have unleashed helicopter money which will amount to tens of trillions in "bailout" funds and liquidity injections, which are really meant to spark hyperinflation and inflate away the world's record amount of debt.
So will Berkshire step up now to "Buy American" again in a repeat attempt to spark a wave of patriotic buying by retail investors? Don't count on it.
In an interview with the WSJ's Jason Zweig, best known for calling gold - whose price is now just shy of all time highs - a "pet rock" in 2015, Buffett's right hand man, Charlie Munger explained that Berkshire's patriotic buying would be far more muted this time... if at all:
"I would say basically we’re like the captain of a ship when the worst typhoon that’s ever happened comes. We just want to get through the typhoon, and we’d rather come out of it with a whole lot of liquidity. We’re not playing, ‘Oh goody, goody, everything’s going to hell, let’s plunge 100% of the reserves [into buying businesses].’"
He added, “Warren wants to keep Berkshire safe for people who have 90% of their net worth invested in it. We’re always going to be on the safe side. That doesn’t mean we couldn’t do something pretty aggressive or seize some opportunity. But basically we will be fairly conservative. And we’ll emerge on the other side very strong.”
Something else odd: unlike 2008 when every CEO was begging Buffett for a bailout, this time executives have learned that they can just go to the Fed. Asked if "hordes of corporate executives" are calling Berkshire begging for capital, Munger said “No, they aren’t. The typical reaction is that people are frozen. Take the airlines. They don’t know what the hell’s doing. They’re all negotiating with the government, but they’re not calling Warren. They’re frozen. They’ve never seen anything like it. Their playbook does not have this as a possibility."
He repeated for emphasis, "Everybody’s just frozen. And the phone is not ringing off the hook. Everybody’s just frozen in the position they’re in."
As Zweig correctly (this time) notes, "with Berkshire’s vast holdings in railroads, real estate, utilities, insurance and other industries, Mr. Buffett and Mr. Munger may have more and better data on U.S. economic activity than anyone else, with the possible exception of the Federal Reserve. But Mr. Munger wouldn’t even hazard a guess as to how long the downturn might last or how bad it could get."
“Nobody in America’s ever seen anything else like this,” said Munger. “This thing is different. Everybody talks as if they know what’s going to happen, and nobody knows what’s going to happen.”
Which is an interesting - if hypocritical - observation since if "nobody knows what's going to happen" how is everyone also saying it won't be a depression, Munger included?
"Of course we’re having a recession,” said Mr. Munger. “The only question is how big it’s going to be and how long it’s going to last. I think we do know that this will pass. But how much damage, and how much recession, and how long it will last, nobody knows."
He added, “I don’t think we’ll have a long-lasting Great Depression. I think government will be so active that we won’t have one like that. But we may have a different kind of a mess. All this money-printing may start bothering us.”
Finally, can the government reduce its role in the economy once the virus is under control?
"I don’t think we know exactly what the macroeconomic consequences are going to be,” said Mr. Munger. “I do think, sooner or later, we’ll have an economy back, which will be a moderate economy. It’s quite possible that never again—not again in a long time—will we have a level of employment again like we just lost. We may never get that back for all practical purposes. I don’t know."
Munger may not know, but Buffett does and explains why this time he will not only not be buying, but in fact shuttering:
“This will cause us to shutter some businesses,” Munger said. “We have a few bad businesses that...we could be tolerant of as members of the family. Somebody else would have already shut them down. We’ve got a few businesses, small ones, we won’t reopen when this is over.”
Finally, here is what Berkshire thinks stocks will do in the future. "I don’t have the faintest idea whether the stock market is going to go lower than the old lows or whether it’s not.” The coronavirus shutdown is “something we have to live through,” letting the chips fall where they may, he said. “What else can you do?"