Fox Business: Warren Buffett on Auto Bailout

Fox Business: Warren Buffett on Unemployment

Whitney Tilson: Berkshire Hathaway Credit Risk, Index Puts Are Overblown Worries

I’ve seen a lot of crazy things in my investment career, but I struggle to think of anything that tops this: Berkshire Hathaway’s five-year credit-default swap spreads have more than tripled in the past two months and now stand at 475 basis points (CDS quotes in this article are as of the end of day 11/19/08 and stock quotes as of 11/20/08), as this chart indicates (click charts to enlarge):

To get some perspective on what this means, the median CDS spread for companies with the lowest investment grade bond rating (BBB-) is 348 basis points, according to Moody’s, so the CDS market is indicating that AAA-rated Berkshire is junk! Or consider this chart, which shows that Berkshire’s CDSs are higher than a wide range of other financial companies [more than 4x Travelers, 3x JP Morgan Chase and well above Citigroup, even after Thursday’s stock collapse – the world has truly gone mad!]:

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Barrack Obama: The 44th President of The United States

Governor Schwarzenegger Discusses the Economy with Warren Buffett at the 2008 Women's Conference

CHRIS MATTHEWS: The stock market dropped 350 points this morning. What should people do here, do now, today, as they make their investment decisions from here on out, Mr. Buffet?

WARREN BUFFETT: Well, I have no idea what the stock market is going to do in the next day, week, year. There's no question in my mind that stocks 10 years from now will be appreciably higher than they are now and there's no question in my mind that people that leave their money in cash equivalents are going to own something of less value at that time. Now, I can't time when you get in but if you own something that's destined to become worth less with cash equivalents and you have a choice to swap it into something that's destined to be worth more -- when you do it is up to you.

I don't think people can time it, so I believe in doing it promptly. And as I mentioned last week, I actually, in my personal portfolio, was going from 100 percent governments into 100 percent stocks, as stocks are going down.

CHRIS MATTHEWS: So still, what we hear from our managers -- and we always hear the same thing -- stay in the market?

WARREN BUFFETT: Yes. Well, in this country in the 20th century we had the Great Depression, we had two World Wars, one of which it looked like we were losing for a while and we had the flu epidemics, we had the resignation of a president, we had about a dozen recessions and panics. The Dow started that century at 66 and it ended at 11,497. This country works. It can get gummed up from time to time, the economy but this country works. (Applause)

CHRIS MATTHEWS: Governor Schwarzenegger, before we get to public policy I want to talk to you about the way I know you started off. As a business guy, right?

GOVERNOR SCHWARZENEGGER: Right.

CHRIS MATTHEWS: I want to ask you just a really basic question. Why is it better to be your own boss?

GOVERNOR SCHWARZENEGGER: Well, first of all, let me just say that I'm very happy to be back here again at the Women's Conference. And I just want to say thank you again to Maria, to my wife, who was working on this all year long to make this a great conference and to have so many women show up, so let's give her a big hand for the great job that she is doing. (Applause)

And I also want to thank the 14,000 women that are here today for supporting this conference and I also want to thank the sponsors for coming here and supporting this and putting their money behind it. So, thank you very much. (Applause)

I always have enjoyed having my own business. I started at the age of 10 -- Warren and I were talking about this backstage, because Warren said the most important thing to be a successful businessman is that you start early and that you get it early, of what it takes to be an entrepreneur. I started at the age of 10 selling ice cream and I made 150 to 180 schilling every weekend when I ran around the lake where I grew up in Austria selling ice cream. And every year during school vacation I always went out and worked and tried to run my own little businesses.

So it was just something that was in my blood. I don't know where it came from, because no one in my family was into business, no one had their own business but I always enjoyed that. And so, when I grew up I ran a gym in Munich at the age of 19 and when I came to America I started my own mail-order business. And so everything was always involved around running my own business.

Also, I think when you are a person that believes in taking risks and not just relying on a safety net -- I came to America because there were great opportunities here. But it was not a safety net that was underneath there. You were out there and you took the risk and if you fall, you fall. And I like that, I like to take the risks, because the bigger the risks the greater the gains but the greater the fall is also, at the same time, so you have to recognize that. So I always enjoyed that.

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Warren Buffett: Buy American. I Am.

THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

So ... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.

Why?

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

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Whitman Sampler Of Value Stocks

Let's talk about some of your current favorite buys.

Toyota Industries

We have a big position in Toyota Industries. Nobody is thinking of what happens if Ford or General Motors or Chrysler stops making cars. What would happen to Toyota's market penetration? In any event, Toyota Industries is a large shareholder in Toyota Motors. At a recent price of $23, you are basically getting the value of Toyota Motors. Toyota affiliates have a market value of $8 to $9 a share, plus you get Toyota Industries' other magnificent worldwide operating businesses, which have operating income of $800 million to $900 million. In other words, you get a minimum of $20 of additional value for free, when you buy Toyota Industries at current prices. Total value is thus around $40, and the stock sells for $23.

Investor AB

This company is essentially a European private equity company, and the Swedish Wallenberg family controls it. In their last quarterly report, they claimed net asset --virtually debt-free, by the way--was 180 Swedish krona. Today, you can buy all the stock you want at $97. Over the years, they have grown that NAV by double digits, on average, each year. They own engineering and power company ABB, Swedish appliance maker Electrolux, and they are big in the medical sciences, including 11% of AstraZeneca.

Henderson Land

Henderson Land is our largest holding. It is the biggest land bank in Hong Kong, and it has a lot of office buildings. They have a huge presence in mainland China.They also control Hong Kong & China Gas and Miramar Hotels. Henderson has an NAV of 57 in Hong Kong dollars, but you can buy all the shares you want at 27 Hong Kong dollars today. The company also has American Depositary Shares (ADS) symbol HLDCY. NAV in real estate means a lot in for international accounting, because unlike GAAP, income-producing real estate is carried at NAV, not at depreciated historic cost as it is here. The reported NAV is 57; we think it is well over 60. Stock sells for 27.

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John Bogle: Keep Investing