Charlie Munger: We Shouldn't Be Bitching About A Little Bailout!

I really do not agree what Charlie Munger have said this time.

Seriously.

Alice Shroeder has the following piece on Bloomberg.

• You’ve gotta love a man who speaks his mind, even when he’s wrong.
  
  We “shouldn’t be bitching about a little bailout” of the banks, Berkshire Hathaway Inc. Vice Chairman Charles Munger told students at the University of Michigan on Sept. 14.
  
  That’s a strong statement, but Munger is one of those refreshing few who can be counted on to deliver his thoughts uncensored in words unminced.
  
  Munger feels the bank bailouts were “required to save your civilization.” He suggested that burdening the economy with bank failures would have results similar to the economic collapse in Germany after World War I and led to the rise of Adolf Hitler. Meanwhile, “the culture dies” if you bail out individuals. People in economic distress should “suck it up and cope.”
  
  Apart from what some might consider his tasteless hyperbole, the problem is the false dichotomy it presents. The choice wasn’t between the bailout or no bailout. It was between the bailout we financed, which didn’t resemble capitalism in any known form, and a bailout more intelligently executed.
  
  No one made us bail out shareholders along with the banks’ bondholders. We didn’t have to preserve institutions that are still too big to fail in any meaningful sense of the term. We could have propped them up temporarily, then recapitalized them as smaller, more manageable entities, with former equity holders assuming the cost of the risk they assumed.
  
  We missed the chance to reduce systemic risk by comprehensively rewriting regulation for the financial-services industry. Instead of withdrawing government guarantees, we increased them. So there are plenty of reasons to complain about the bailouts.
  
  Munger in Chief
  
  To give him credit, I’m pretty sure if we gave Munger unfettered dictatorial power, he would have structured the bailouts more intelligently than what actually took place. In his remarks, he wasn’t defending the form of the bailouts, only their size. If anything, “it should have been bigger,” he said.
  
  Munger’s reference to a massive bailout needed to ward off another Germany-style hyperinflation also wasn’t necessarily hyperbolic. It echoed his partner, Berkshire Chief Executive Officer Warren Buffett, whose ongoing theme is that we’ve experienced an “economic Pearl Harbor.”
  
  Both of these men look at the situation as impersonal oddsmakers. By this logic, if the damage from too much stimulus is tolerable, and the damage from too little stimulus is intolerable, the expected value of the outcomes reveals that we should run the lesser risk of overstimulating. This is throwing people off the lifeboat to keep it from sinking.
  
  Money Talks
  
  In spite of this logic, people may wonder whether Munger’s statements are influenced by Berkshire’s large holdings in Wells Fargo & Co. ($8.5 billion), the U.S.’s biggest home lender, as well as its $5 billion investment in Goldman Sachs Group Inc. It happens that Munger’s financial interests do line up with his words.
  
  If that’s not a coincidence, it’s probably because he puts his money where his mouth is rather than the other way round. In choosing sides between the opposing interests that inevitably arise in commerce, Munger and Buffett identify with the lender, not the borrower; with the bank, not the depositor; and that’s how they invest.
  
  It’s therefore not surprising that Munger focused on the vital role that banks play in society when he said that people should suck it up and cope. Maintaining the trust that binds creditors and debtors is essential to the security of a culture.
  
  Bad Incentives
  
  What’s unfortunate about this concern about bad incentives is that Munger didn’t extend it to qualify his support for the bank bailouts and the tremendous moral hazard they created. It may seem appropriate, in a Darwinian sense, to reward the thrifty savers by securing their deposits while leaving feckless borrowers to fend for themselves, until you consider that the banks were the worst abettors of the feckless borrowers.
  
  As for trust, financial institutions have so much leverage with their customers these days that the relationship is rarely based on reciprocal values. It’s inappropriate that the requirement of trustworthiness should run in only one direction, in favor of the bank.
  
  Munger’s prescription for the foreclosed masses suggests the result would be a form of justice that does us all a favor. Bailing out homeowners would be “shoveling out money to people who say ‘My life is a little harder than it used to be,’” Munger said.
  
  I’m all for self-reliance, and this perspective on misfortune deserves some latitude, coming as it does from a man who was raised during the Great Depression. I find it refreshing that Munger speaks his mind and is fearless of being found politically incorrect. In the end, though, coming from a billionaire, “suck it up” veers a bit too close to “let them eat cake.”

http://www.bloomberg.com/news/2010-09-21/billionaire-munger-offers-us-a-false-choice-alice-schroeder.html

Alice Shroeder: Madoff May Have Been The Most Efficient Thief In History

Interesting writing from Alice Shroeder again.

• Madoff’s $200,000-an-Hour Beats Tiger Woods: Alice Schroeder
  
  March 27 (Bloomberg) -- “To the best of my recollection,” Bernard Madoff told the judge in his guilty plea on March 11, “my fraud began in the early 1990s.”
  
  He seemed detached, as if reading a statement about a stranger. Maybe that’s why his recollection was wrong.
  
  Prosecutors say Madoff was Ponzifying since the early 1980s, even the 1970s. By various estimates, Madoff netted $10 billion to $20 billion (the $65 billion cited in the guilty plea is adjusted for past distributions to clients). Yet the mind goes numb trying to grasp what the billions signify in these days of multitrillion-dollar bailouts and shareholder losses from Citigroup Inc.’s collapse into a penny stock.
  
  Let’s measure the numbers on a human scale. Even estimating conservatively, Madoff stole more than $1.6 million every workday of his criminal career. Based on my calculations, Madoff’s bilking rate topped $200,000 an hour, or almost 60 bucks a second. He may have been the most efficient thief in history.
  
  Compare that with the most expensive lawyer in the U.S., who, as of January billed at $1,260 an hour.
  
  Even Tiger Woods, the world’s priciest athlete, is a piker by comparison, earning in recent years about $60,000 an hour, based on 40-hour weeks. And Woods is no slacker, whereas Madoff was ripping off his clients while he did nothing.
  
  Money Is Gone
  
  True, concealing his sloth took bureaucratic skills and ingenuity. Keeping a straight face at the country club for decades while cheating his closest friends was an accomplishment in its own right. That no one knows what happened to most of his stash is beside the point. As far as his hapless victims are concerned, the money’s gone.
  
  Some are questioning whether it is fair to describe those swindled by Madoff as victims, saying that, in their naivety and blind ignorance, they failed to take precautions against fraud. But that only makes them all the more victimized. How much more vicious it is to prey on the clueless than on those who are equipped to defend themselves.
  
  In this cautionary fairy tale, Madoff’s unfortunate clients were the Hansels and Gretels of finance, enticed by the witch who lives inside a house covered with candy and sugarplums. Unlike Hansel and Gretel, though, they didn’t get out whole.
  
  One of the most persistent questions about Madoff has been why his clients weren’t more suspicious of why he managed their money outside the usual fee structure of a hedge fund. They should have been wary because his setup made him seem altruistic, as if he were passing on the chance to bilk them.
  
  Lower Fees
  
  He could have promised investors the same stable, low-risk, above-market returns from a multistrategy hedge fund, offering a little kicker: lower fees than a fund-of-funds.
  
  Ideally, he would have named this vehicle something more creative than Bernard L. Madoff Investment Securities LLC. Something appropriate, following the example of Amaranth Advisors LLC, the collapsed hedge fund (named after the herb also known as pigweed). Then, just lever that baby up to maximum size, rake in the fees and boom, done.
  
  True, as a real hedge-fund manager, Madoff would have had to invest his clients’ money. But having done so -- even with complete ineptitude -- think how smug he could feel after it all blew up, knowing that careful drafting of the offering document by his $1,260-an-hour lawyer had boilerplated the risk, thus keeping him out of prison.
  
  $5 Billion
  
  If only Madoff, 70, could work as a hedge-fund manager now. Under court-ordered supervision at his former $200,000-an-hour bilking rate over his actuarial life expectancy of 12.7 years, he could easily take more than $5 billion from the pockets of the rich, and give it to his formerly rich clients in partial recompense.
  
  Too bad, the era of 2-and-20-plus-expenses is over. The best we can do is find a more psychically satisfying punishment than watching Madoff rot in a prison cell or pick up trash along the highway.
  
  For his remaining 4,635 allotted days, therefore, I sentence Bernard Madoff as follows:
  
  He will work as a janitor at Yeshiva University and change bedpans at the North Shore-Long Island Jewish Health System hospitals. He will donate his bone marrow to the Gift of Life Foundation. He will swallow all the abuse his celebrity clients care to dish out, including slaps in the face from Zsa Zsa Gabor. He will work his little leg irons off doing whatever scut duties required of him. It’s the least he can do.
  
  So far, Madoff doesn’t seem to share any of the sorrow, remorse and shame exhibited by his prey. Maybe a stint on a window-cleaning platform will wring a little guilt out of his cold, hard, sociopathic heart. About once a month, he will spend a few hours washing windows on the 17th floor of the Lipstick Building. There, he can look inside at his former office, where he spun the sugar that enticed his investors into the trap.
  
  We should have no qualms about sending Bernard Madoff 17 stories up. Unlike his clients, it’s a safe bet he won’t jump.

ps: if you enjoy this piece, check out older postings.

• Interview On CNN: Alice Shroeder Talks About Warren Buffett
• Alice Shroeder Talks At University Of Virginia
• Jason Zweig Review Of Alice Shroeder's "The Snowball"
• Warren Buffett Buys Stocks, The Snowball Chapter 2 and J. Kyle Bass
• The Snowball: Chapter 1 - The Less Flattering Version

Alice Shroeder Talks At University Of Virginia

Here is an excellent video of Alice Schroeder speech at a University of Virginia value investing conference. ( Skip the long introductory - fast forward to 06.00)

Jason Zweig Review Of Alice Shroeder's "The Snowball".

Jason Zweig comments on Alice Shroeder's "The Snowball".

• Journey to the Center of Warren Buffett’s Mind
  
  November 14, 2008, 3:43 pm
  
  Not so long ago, investing used to be fun. Now it resembles an Olympic archery practice at which the target is you. Maybe you felt a little safer this Thursday, when the Dow went up 553 points. Well, today it dipped by as much as 352 before closing down 338 points.
  
  If you want to escape the arrows, you can find some refuge by reading the new biography by Alice Schroeder, “The Snowball: Warren Buffett and the Business of Life” (published by Bantam on Sept. 29, the day Congress voted down the first bailout plan and the Dow fell almost 800 points). Although he is lucky in many ways, Mr. Buffett is also the world’s most successful investor because he has worked extraordinarily hard and thought very deeply about his craft.
  
  Mr. Buffett gave Ms. Schroeder thousands of hours of face time, a privilege earlier biographers did not have. In 1995, Roger Loewenstein’s superb book “Buffett: The Making of an American Capitalist” analyzed Mr. Buffett’s rationale for specific investments in illuminating detail, but Ms. Schroeder has been able to delve more deeply into Mr. Buffett’s mind and heart.
  
  The result is riveting and encyclopedic. At 960 pages and 3½ lbs., “The Snowball” hits readers like an avalanche. Some people feel almost buried by the wealth of detail about Mr. Buffett’s family life, but the overall power of the story carries “The Snowball” forward. There is much to be learned from it.
  
  To me, the most striking thing to come out of the book is a clearer sense of Mr. Buffett’s extraordinary emotional detachment. Remember, this is an authorized biography; as Mr. Buffett’s spokesperson put it, “She [Ms. Schroeder] wrote every word, and he did not edit it.”
  
  After years of emotional isolation from the workaholic Mr. Buffett, his wife Susie “stayed up late at night alone, listening to music that transported her to some different place…. She loved…great soul music, like the Temptations, who sang of a world in which it was men who felt all the longing.”
  
  Passages like these are heartbreaking for even a stranger to read. How many of us could bear to let someone else bare our most intimate weaknesses and failures? And yet here we not only see the pain that Mr. Buffett caused his wife, but we know that he has acquiesced in letting us see it.
  
  This detachment, I think, is one of Mr. Buffett’s greatest strengths. He has the ability to hover over his own actions and judgments, as if he were having an out-of-body experience, looking down and evaluating the man who made them as if he were someone else entirely.
  
  In person, Mr. Buffett is as warm and empathetic a person as anyone I have ever met — but he also seems, in Ms. Schroeder’s telling, to be forever observing himself from a distance as well. There is, in her portrait of him, a streak of something at least mildly reminiscent of autism: a photographic memory, an effortless command of complex mental computations, an enduring obsession with collecting and measuring everything imaginable.
  
  This almost-autistic streak in Mr. Buffett exacted a terrible toll on his family as he toiled around the clock for years. Long before it was common, he worked out of a home office, and it is hard to shake the image of him padding through the house in his stocking feet, his face buried in an annual report, oblivious to his own family.
  
  Mr. Buffett’s unparalleled record of investing achievement came at a personal price most of us would never be willing to pay; although he now has a warm relationship with his adult children, his billions were earned only at an incalculable emotional cost in their earlier years.
  
  I shuddered several times as I read Ms. Schroeder’s account of how desperate Mr. Buffett’s family was for his affection. Anyone who thinks beating the market is easy should think twice, based on Mr. Buffett’s own experience.
  
  The Schroeder book makes it clear that in his early years, Mr. Buffett paid a toll so high, in currency so dear, that most investors would not dare to approach the same tollbooth.
  
  Here are the investing ideas that I think the book highlights in new detail:
  
  Discipline. What explains Mr. Buffett’s success? His one-word answer: “focus.” For him, that meant working all hours day and night, memorizing oceans of statistics about hundreds of stocks, and reading corporate financial statements on a family trip to
  
  Mr. Buffett’s uncanny ability to stay one step ahead of the markets comes from five decades of working harder on his homework than anyone else. Can you even name the three toughest competitors of every company whose stock you own?
  
  Self-confidence. From his father, an iconoclastic politician, Mr. Buffett inherited what he calls the knack of keeping an “inner scorecard,” rather than an “outer scorecard.” He does not care whether other people agree with him. He cares only whether his decisions make sense to him, based on his own rigorous research. Do you invest based on what “everybody knows” is “true,” or do you analyze all the evidence yourself?
  
  Self-control. Mr. Buffett does not let the emotions of millions of strangers — the collective greed and fear of the markets — determine his own mood. When he feels his blood pressure rising or his nerves on edge, he calms himself down by gazing at snapshots of his kids or playing a game of bridge with his friends. Mr. Buffett restores his sense of self-control by refusing to dwell on the things he cannot control. Are you staring at every scarlet downtick on the Dow?
  
  Inversion. Mr. Buffett most likes to buy stocks not when they are going up, but when they are going down. In 1969, during a raging bull market, he shut down his original investment partnership. Then, in 1974, when stocks (and market sentiment) hit rock bottom, Mr. Buffett bought with such abandon that he felt “like an oversexed guy in a harem.” Again, in 1999, as investors went gaga for technology stocks, Mr. Buffett sat on his hands. In the miserable market of 2008, he is buying again (although sometimes on “sweetheart” terms not available to you and me). Are you tempted to stand aside from stocks until after they go up?
  
  The long view. From a very young age, Mr. Buffett developed the remarkable habit of regarding a dollar spent today as a small fortune he would not have in the future: “Do I really want to spend $300,000 for this haircut?” He felt that any money he could not invest was money that would never grow — and that he would thus incur a huge future price for any present spending. If you are among the many people cutting back your 401(k) contributions because the market has cratered, have you thought about the cumulative future costs of that decision?
  
  Rigid versatility. Throughout his career, Mr. Buffett has been tactically flexible but strategically inflexible. His core principles have never varied one iota: Buy only what he understands, never overpay, always put safety first, be patient. But Mr. Buffett is as stretchy as Plastic Man when it comes to implementation. He will buy silver ingots, or municipal bonds, or a privately held company that manufactures both bricks and cowboy boots — whatever is on sale at the right terms. Now that virtually every investment on earth is down between 10% and 60%, is cash the only thing that interests you?

Source: http://blogs.wsj.com/wallet/2008/11/14/journey-to-the-center-of-warren-buffetts-mind/

Interview On CNN: Alice Shroeder Talks About Warren Buffett

CNN today has published an interview with Alice Schroeder, author of The Snowball: Warren Buffett And The Business of Life.

Commentary: Buffett's career a battle of greed vs. principles

• (CNN) -- Since the start of the financial crisis, the world's wealthiest man, investor Warren Buffett, has been front and center
  
  He's advised Sen. Barack Obama on economic policy. He urged Congress to pass the $700 billion bailout bill. He bought stakes in Goldman Sachs and General Electric.
  
  He wrote an op-ed piece in the New York Times saying he's buying stock in American companies now because he believes they will do well in the long run, citing as his rule: "Be greedy when others are fearful."
  
  Buffett's name came up in the second presidential debate when the candidates agreed he'd be a good choice for treasury secretary. His fortune was estimated at $62 billion by Forbes in March.
  
  Alice Schroeder got Buffett's cooperation in writing her new book, "The Snowball: Warren Buffett and the Business of Life" (Bantam Books). Schroeder, who worked on Wall Street as an insurance industry analyst, met Buffett 10 years ago when his company, Berkshire Hathaway, bought a big insurance company.
  
  Schroeder says she suggested he write a book about his life, and the 78-year-old Buffett turned the tables, urging her to do it instead. Schroeder estimates she spent about 2,000 hours with Buffett and interviewed 250 people for the book. Now on a tour to promote her book, Schroeder is in a unique position to speak about Buffett at a time when many media outlets are seeking his views.
  
  "I have about 300 hours of recorded interviews and the rest of the time I observed him, I watched him make decisions and talk on the phone, went through files. I got to sit in his office for weeks, I ate steaks with him," says Schroeder, who's 51. "If it ever said moo, he'll pretty much eat it. He likes his steaks bloody rare and hanging off the plate, they're so big."
  
  CNN: Why are people so interested in Warren Buffett?
  
  Schroeder: I think he's transcended business to become a national figure because of people's trust in him as a symbol of stability and a symbol of someone who knows how to manage risk and avoid catastrophe and of how to run a business on principles.
  
  CNN: Is there any realistic possibility of him taking a government position?
  
  Schroeder: No, none. What he really likes to do is run Berkshire Hathaway, and he's not going to let anything take him away from that. He's also not going to let anyone spend his day filled up with meetings or schedule his time, he's too independent.
  
  CNN: You make clear that in the 1990s tech boom, Wall Street turned away from Buffett and there was some criticism of him. Do you think that now, because of the market downturn, people will look to him more to set a standard of how the market operates?
  
  Schroeder: I think it's fair to say that throughout his career, every time there's been a bubble and it's burst, his reputation has grown. That happened in the 1960s, when the bubble burst in the 1970s, it happened again after 1987. It happened again after the savings and loan crisis. ... It happened again after the Internet bubble and it's happening now.
  
  CNN: It doesn't seem to have had a lasting effect, since we keep going back into another boom period or bubble.
  
  Schroeder: He would say that human nature doesn't change, and that fear and greed are always the two drivers of the market. And there are people who listen when he gives learnings, but that the market will always be ruled by cycles driven by fear and greed.
  
  CNN: Have you talked to him about the current market turmoil?
  
  Schroeder: Last spring, when Bear Stearns was being taken over by J.P. Morgan ... he talked about the dominoes falling, and how, if that happened, the government could face some very unpleasant choices and have to take drastic measures. With hindsight it looks really prescient. In 2002, he talked about derivatives as financial weapons of mass destruction.
  
  More recently, his observation was that there was a lot of anger and denial at first about what was going on, and that people were not quite grasping the gravity of the situation and how quickly and dramatically they needed to move.
  
  He always says, don't sell into a panic, don't let the fear and the emotions of the market change how you feel. If you own good stocks in good companies or you own an index of the markets, and you see it getting cheaper, that's a reason to be happy, not to panic and sell. ... The idea is buy low, sell high -- not buy high, sell low.
  
  He understands the factors that are burdening the country, the federal deficit, the consumer debt, the infrastructure spending that we're going to have to do, but he has a belief in American ingenuity which over the long term has enabled our country to solve problems that seemed insurmountable in the past. For example, in the 1970s, it looked like the country could not ever dig its way out of the mess. So he does have a faith in the long-term prospects of the country.
  
  CNN: Is he a gambler?
  
  Schroeder: No, he's a handicapper -- big difference. A handicapper is somebody who understands odds-making. A gambler is somebody who bets but may not even understand the odds. Warren believes in a margin of safety, he doesn't bet unless the odds are overwhelmingly in his favor. When he goes to Vegas he does not gamble, he goes to see the shows.
  
  CNN: What are his flaws?
  
  Schroeder: He is somebody who can be very tough in business and very impersonal, including with people he likes. And in personal relationships, he negotiates as if it were a business relationship
  
  When he was putting Berkshire Hathaway together, as [his business partner] Charlie Munger puts it, he was an implacable acquirer. The book refers to him, in my words, as a great white shark, and the book describes the battle between his avarice and his higher principles. At times, his avarice won.
  
  And over his lifetime, it's been essentially a progress during which his higher principles have increasingly had the upper hand. But when he was in junior high, he was a shoplifter. He was a juvenile delinquent. He sold his sister's bicycle. It's been pretty much uphill from there, but it hasn't been a straight line.
  
  CNN: In his adult life, was there a time when his avarice won out over higher principles?
  
  Schroeder: Absolutely, he's made investments that he shouldn't have made, for example, when he invested in Salomon. He was criticizing Wall Street and saying if you want to make a lot of money, hold your nose and go to Wall Street, and at the same time he was already there. Berkshire owned $700 million of convertible preferred [stock] in a major Wall Street bank. And he was sort of mentally distancing himself from a business that he was invested in.
  
  That kind of separation is something that's very hard to maintain. And in the end, he had to become interim chairman of Salomon to rescue the firm. Psychologically, he was trying to distance himself from it because the two sides of him were at war.
  
  CNN: Is he still critical of Wall Street?
  
  Schroeder: You've got an economy in which financial intermediaries who don't add anything to the economy ... have in the past two decades stripped off huge amounts of fees, particularly buyout funds, and hedge funds and funds of funds, and he's very, very critical of the amount of fees that have been taken out.
  
  He has no problem with executive pay when it's related to performance. He thinks in most cases executives are being paid to sit in a chair whether they perform or not. And he's pointed out that these people are not like major league baseball players, who get recruited away by other teams. When CEOs get fired and they get these golden parachutes, you don't normally see them winding up somewhere else, right?
  
  So they're getting paid these huge amounts of money as an incentive to stay and then they get paid the consolation prize when they get fired. The pay is always getting ratcheted upward, they're getting paid to incent them to stay and they're getting paid to console them when they leave, no matter what the shareholders are getting. It's not aligned with anything the shareholders get, that really bothers him.
  
  CNN: What would he say about coping with an economic downturn?
  
  Schroeder: That people should think for the long run and make their personal decisions for the long run and build a margin of safety into their lives as best they can.
  
  Think about what could go wrong. Don't assume the best-case scenario. If you've got debts, your first thought should be how to pay them off, and negotiate with creditors if you're struggling, because they'll usually be flexible. And be realistic about what you can afford, because having a financial cushion means you can sleep at night, and that's worth more than a big-screen TV.
  

Warren Buffett Buys Stocks, The Snowball Chapter 2 and J. Kyle Bass

So some of the legends are stating publicly that they are buying US stocks: John Neff Is Buying Again And Shares What He Buys! and Warren Buffett Puts His Money Where His Mouth Is

I indeed had a wide smile on my face when I posted Warren's Buy American, I Am ( Warren Buffett Puts His Money Where His Mouth Is ) for I had just finished the 2nd Chapter of The Snowball: Warren Buffett And The Business of Life.

I for one did not know the events stated in Chapter 2. I was rather surprised to read that Warren E. Buffett had actually made a stock prediction back in 1999 in Sun Valley and again, I am utterly impressed with Alice style of writing. For once, this did not seem as if I was reading yet another investment book but it was as if I was reading a poetic history of a legendary man but yet in it, it contained the best ever lesson on the stock market and mind you, I have only just finished Chapter 2.

Now I cannot reproduce everything from the book here.. but the following are some of the passages I loved in that Chapter.

• The audience, full of technology gurus who were changing the world while getting rich off the great bull market, sat silent. They were perched atop portfolios that were jam-packed with stocks trading at extravagant valuations. They felt terrific about that. It was a new paradigm, this dawning of the Internet age. Their attitude was that Buffett had no right to call them greedy. Warren — who’d hoarded his money for years and given very little away, who was so cheap his license plate said “Thrifty,” who spent most of his time thinking about how to make money, who had blown the technology boom and missed the boat — was spitting in their champagne.
  
  Buffett continued. There were only three ways the stock market could keep rising at ten percent or more a year. One was if interest rates fell and remained below historic levels. The second was if the share of the economy that went to investors, as opposed to employees and government and other things, rose above its already historically high level. Or, he said, the economy could start growing faster than normal. He called it “wishful thinking” to use optimistic assumptions like these.
  
  Some people, he said, were not thinking that the whole market would flourish. They just believed they could pick the winners from the rest. Swinging his arms like an orchestra conductor, he succeeded in putting up another slide while explaining that, although innovation might lift the world out of poverty, people who invest in innovation historically have not been glad afterward.

And..

• Another light chuckle. Some were getting tired of these musty old examples. But out of respect, they let Buffett get on with it.
  
  Now he was talking about their businesses. “It’s wonderful to promote new industries, because they are very promotable. It’s very hard to promote investment in a mundane product. It’s much easier to promote an esoteric product, even particularly one with losses, because there’s no quantitative guideline.” This was goring the audience directly, where it hurt. “But people will keep coming back to invest, you know. It reminds me a little of that story of the oil prospector who died and went to heaven. And St. Peter said, ‘Well, I checked you out, and you meet all of the qualifications. But there’s one problem.’ He said, ‘We have some tough zoning laws up here, and we keep all of the oil prospectors over in that pen. And as you can see, it is absolutely chock-full. There is no room for you.’
  
  “And the prospector said, ‘Do you mind if I just say four words?’
  
  “St. Peter said, ‘No harm in that.’
  
  “So the prospector cupped his hands and yells out, ‘Oil discovered in hell!’
  
  “And of course, the lock comes off the cage and all of the oil prospectors start heading right straight down.
  
  “St. Peter said, ‘That’s a pretty slick trick. So,’ he says, ‘go on in, make yourself at home. All the room in the world.’
  
  “The prospector paused for a minute, then said, ‘No, I think I’ll go along with the rest of the boys. There might be some truth to that rumor after all.’
  
  “Well, that’s the way people feel with stocks. It’s very easy to believe that there’s some truth to that rumor after all.”
  
  This got a mild laugh for a half second, which choked off as soon as the audience caught on to Buffett’s point, which was that, like the prospectors, they might be mindless enough to follow rumors and drill for oil in hell.
  
  He closed by returning to the proverbial bird in the bush. There was no new paradigm, he said. Ultimately, the value of the stock market could only reflect the output of the economy.

lastly...

• He had worked his way back around to the same subject: that one couldn’t extrapolate from the past few years of accelerating stock prices. “Now, is there anyone I haven’t insulted?” He paused. The question was rhetorical; nobody raised a hand.
  
  “Thank you,” he said, and ended.
  
  “Praise by name, criticize by category” was Buffett’s rule. The speech was meant to be provocative, not off-putting — for he cared a great deal what they thought of him. He had named no culprits, and he assumed they would get over his jokes. His argument was so powerful, almost unassailable, that he thought even those who didn’t like its message must acknowledge its force. And whatever unease the audience felt was not expressed aloud. He answered questions until the session ended. People began to stand, awarding him an ovation. No matter how they saw it — a masterful exposition on how to think about investing or the last roar of an old lion — the speech was by any standard a tour de force.
  
  Buffett had stayed on top for forty-four years in a business where five years of good performance was a meaningful accomplishment. Still, as the record lengthened, the question always loomed: When would he falter? Would he declare an end to his reign, or would some seismic shift dethrone him? Now, it seemed to some, the time had come. It may have taken an invention as significant as the personal computer, coupled with a technology as pervasive as the Internet, to topple him, but he’d apparently overlooked information that was freely available and rejected the reality of the approaching millennium. As they muttered a polite “wonderful speech, Warren,” the young lions prowled, restive. And so, even in the ladies’ room at the break, sarcastic remarks were heard from the Silicon Valley wives.
  
  It was not just that Buffett was wrong, as some felt, but that even if he were eventually proved right — as others suspected he would be — his dour prediction of the investing future contrasted so sharply with Buffett’s own legendary past. For in his early glory days, stocks were cheap, and Buffett had scooped them up in handfuls, almost alone in noticing the golden apples lying untouched on the path. As the years passed, barriers grew up that made it harder to invest, to get an edge, to figure out what others didn’t know. So who was Buffett to preach at them, now that it was their turn? Who was he to say that they shouldn’t make money while they could off this wonderful market?
  
  Throughout the rest of the lazy afternoon, Herbert Allen’s guests played one last game of tennis or golf or headed to the Duck Pond Lawn for a leisurely chat. Buffett spent his afternoon with old friends, who congratulated him on his triumph of a speech. He believed he had done a convincing job of swaying the audience. He had not given a speech full of such commanding evidence simply to go on the record.
  
  Buffett, who wanted to be liked, had registered the standing ovation, not the mutterings. But the less flattering version was how many were not convinced. They believed that Buffett was rationalizing having missed the technology boom, and they were startled to see him make such specific predictions, prophecies that surely would turn out to be wrong. Beyond his earshot, the rumbling went on: “Good ol’ Warren. He missed the boat. How could he miss the tech boat? He’s a friend of Bill Gates."
  
  A few miles away at the River Run Lodge later that evening, with the guests at the closing dinner again arranged according to some invisible plan, Herbert Allen finally spoke, thanking various people and reflecting on the week. Then Susie Buffett took the stage beside the windows that overlooked the pebbly Big Wood River and once again sang the old standards. Later the guests returned to the Sun Valley Lodge terrace, where Olympic skaters axeled and arabesqued in the Saturday night ice show.
  
  By the time fireworks exploded across the sky at evening’s end, Sun Valley ’99 had been declared another glorious five-day extravaganza. Yet what most people would remember was not the rafting or the skaters; it was Buffett’s talk about the stock market — the first forecast he had made in exactly thirty years.

And that was Warren's first forecast which he warned about the insane valuations in the tech stocks and now almost 10 years later he's sending a powerful message that he's putting His Money Where His Mouth Is and buy American Stocks, He Is!

Now here's a differing viewpoint from someone who deserves to he heard and he is J. Kyle Bass.

Say who? Just who is J. Kyle Bass?

Well back in Dec 19th 2007. Published on Bloomberg: Bass Shorted `God I Hope You're Wrong' Wall Street

• Dec. 19 (Bloomberg) -- J. Kyle Bass, a hedge fund manager from Dallas, strode into a New York conference room in August 2006 to pitch his theory about a looming housing market meltdown to senior executives of a Wall Street investment bank.
  
  Home prices had been on a five-year tear, rising more than 10 percent annually. Bass conceived a hedge fund that bet on a crash for residential real estate by trading securities based on subprime mortgages to the least credit-worthy borrowers. The investment bank, which Bass declines to identify, owned billions of dollars in mortgage-backed securities.
  
  ``Interesting presentation,'' Bass says the firm's chief risk officer said into his ear, his arm draped across Bass's shoulders. ``God, I hope you're wrong.''
  
  Within six months, Bass was right. Delinquencies of home loans made to people with poor credit reached record levels, and prices for the securities backed by these subprime mortgages plunged. The world's biggest financial institutions would write off more than $80 billion in subprime losses, while Bass, his allies and a handful of Wall Street proprietary trading desks racked up billions in profits.
  
  Bass and investors like him saw opportunity in a range of new investment tools that banks created to sell subprime securities worldwide. These included mortgage bond derivatives, contracts whose values are derived from packages of home loans and are used to hedge risk or for speculation. The vehicles allowed hedge funds like Bass's to bet against particular pools of mortgages. (do read the rest here )

Anyway J. Kyle Bass has written a report and you can download it here: here

Here are the first two passages.

• What’s Next?
  
  It is the "what’s next" that scares us the most. There is no doubt that many books will be written chronicling the times we are living through today. When we wrote to you in July 2007, we really meant "feet first"! The common denominator of everything that has gone wrong so far has been reckless amounts of leverage. The system both nationally and globally is still trying to de-lever as fast as possible, the problem is that everyone is being forced to do it at the same time. 3-month LIBOR is off the charts - not as many believe, because banks don't trust each other - but because THERE IS NO MONEY LEFT FOR THEM TO LEND TO EACH OTHER. We have argued for years now that there is not enough money at the bottom of the levered pyramid scheme the world has put together. In the U.S. alone, with Lehman, AIG, Bear Stearns, Fannie, Freddie, WaMu, IndyMac, Countrywide, and the rest of the companies that have failed to date (any many more "on deck"), there are $8 TRILLLION of assets already in receivership, conservatorship, liquidation, or "parked" with a big brother. Do you think the Government will be successful in purchasing illiquid assets off of the balance sheets of troubled companies? The odds (and the assets) are against them. Even if the Government invests equity to fill the "hole" that is created upon the sale of these assets, it leaves the same nefarious management teams in place to continue the problem by taking the money and levering it up again. The only way to solve this problem is to go THROUGH IT. We know it isn't politically popular or even popular on Wall St, but the fact is that the U.S. and the world need a Darwinian flush to rebuild our foundations and become even stronger on the backside of this mess.
  
  $700 Billion is Not Enough
  
  Let's do some quick math. We realize that there are many moving targets, but we must attempt to put things into perspective for those of you at home. To date, some $550 Billion has been written down by the world's financial institutions. In the United States alone, there is $10 TRILLION of "Prime" mortgage debt, $1.5 TRILLION of Alt-A mortgage debt, and $1.2 TRILLION of Subprime mortgage debt. Based on our assumptions, we believe we will see cumulative losses of AT LEAST 25% in Subprime, 20% in Alt-A, and 5% in Prime. Our expected default rates and severities imply that over $2.2 TRILLION of defaulted mortgage loans would result in AT LEAST $1.1 TRILLION of REAL LOSSES in mortgages IN THE U.S. ALONE. For those of you that want to talk implied roll rates, defaults, and loss severities, just give us a call. We review almost all securitization data each month. Many other countries around the world have actually lent even more aggressively than the U.S. Australia, for example, has lent on home values at 9 times median income! Historically, 3.5X is the number that actually allows borrowers to afford to pay (fathom that). The math for the rest of the world is pretty scary.

The Snowball: Chapter 1 - The Less Flattering Version

Got my copy of The Snowball: Warren Buffett And The Business of Life

I have read the first few pages of the book and I have to say it out loud that I am totally impressed and I can understand why Warren Buffett has chosen Alice Schroeder to do the massive task of telling his incredible story.

Let me reproduce here just the last few passages of the very short Chapter 1 of the book and you can see how Alice writing style really reflects Warren.

• He leaps out of his chair to bring home the thought, crossing the room in a couple of strides. Landing on a mustardy-gold brocade armchair, he leans forward, more like a teenager bragging about his first romance than a seventy-two-year-old financier. How to interpret the story, who else to interview, what to write: The book is up to me. He talks at length about human nature and memory’s frailty, then says, ‘Whenever your version is different from somebody else’s, Alice, use the less flattering version.’
  
  Among the many lessons, some of the best come simply from observing him. Here is the first: Humility disarms.
  
  In the end, there won’t be too many reasons to choose the less flattering version – but when I do, human nature, not memory’s frailty, is usually why.
  

I Have Ordered My Copy: The Snowball: Warren Buffett And The Business of Life

"Life is like a snowball. The really important thing is finding wet snow and a really long hill."

That's where former Morgan Stanley insurance analyst Alice Schroeder got the idea for the title for her book on Warren Book. It's called The Snowball: Warren Buffett and the Business of Life .

Here is the editorial review on Amazon.

• Product Description
  Here is THE book recounting the life and times of one of the most respected men in the world, Warren Buffett. The legendary Omaha investor has never written a memoir, but now he has allowed one writer, Alice Schroeder, unprecedented access to explore directly with him and with those closest to him his work, opinions, struggles, triumphs, follies, and wisdom. The result is the personally revealing and complete biography of the man known everywhere as “The Oracle of Omaha.”
  
  Although the media track him constantly, Buffett himself has never told his full life story. His reality is private, especially by celebrity standards. Indeed, while the homespun persona that the public sees is true as far as it goes, it goes only so far. Warren Buffett is an array of paradoxes. He set out to prove that nice guys can finish first. Over the years he treated his investors as partners, acted as their steward, and championed honesty as an investor, CEO, board member, essayist, and speaker. At the same time he became the world’s richest man, all from the modest Omaha headquarters of his company Berkshire Hathaway. None of this fits the term “simple.”
  
  When Alice Schroeder met Warren Buffett she was an insurance industry analyst and a gifted writer known for her keen perception and business acumen. Her writings on finance impressed him, and as she came to know him she realized that while much had been written on the subject of his investing style, no one had moved beyond that to explore his larger philosophy, which is bound up in a complex personality and the details of his life. Out of this came his decision to cooperate with her on the book about himself that he would never write.
  
  Never before has Buffett spent countless hours responding to a writer’s questions, talking, giving complete access to his wife, children, friends, and business associates—opening his files, recalling his childhood. It was an act of courage, as The Snowball makes immensely clear. Being human, his own life, like most lives, has been a mix of strengths and frailties. Yet notable though his wealth may be, Buffett’s legacy will not be his ranking on the scorecard of wealth; it will be his principles and ideas that have enriched people’s lives. This book tells you why Warren Buffett is the most fascinating American success story of our time.
  
  About the Author
  Author Alice Schroeder was a noted insurance industry analyst and writer who was a managing director at Morgan Stanley. She first met Warren Buffett when she published research on Berkshire Hathaway; her grasp of the subject and insight so impressed him that he offered her access to his files and to himself. Their friendship and mutual respect make her ideally positioned to write the The Snowball.
  
  Ms. Schroeder was born in Texas, and she earned an undergraduate degree and her MBA at the University of Texas at Austin before moving east to work in finance. She is a former CPA and lives in Connecticut with her husband.

And here is an article from Reuters, Authorized Warren Buffett biography due September 29

• NEW YORK (Reuters) - The long-awaited authorized biography of billionaire investor Warren Buffett, the first written with his cooperation, is scheduled for release on September 29, the publisher said on Monday.
  
  The 976-page book is being written by former Morgan Stanley (NYSE:MS - News) insurance analyst Alice Schroeder, and is titled "The Snowball: Warren Buffett and the Business of Life," publisher Bantam Dell Publishing Group said.
  
  Schroeder first met Buffett while working as an analyst, and covered Buffett's insurance and investment company, Berkshire Hathaway Inc (NYSE:BRK-A - News; NYSE:BRK-B - News).
  
  According to the publisher, Schroeder has spent "thousands of hours" with Buffett, talking about his life and career, and winning broad access to his files and friends.
  
  The book had been scheduled for a May release in conjunction with Berkshire's annual shareholder meeting, but was delayed.
  
  Its title comes from a reported comment by Buffett: "Life is like a snowball. The really important thing is finding wet snow and a really long hill."
  
  Schroeder's book earlier had the title "The Snowball: How Warren Buffett Collected Friends, Wisdom and Wealth."
  
  Buffett has transformed Omaha, Nebraska-based Berkshire since 1965 into a roughly $179 billion conglomerate with at least 76 companies selling such things as car insurance, ice cream, paint and underwear, and investing in stocks.
  
  Forbes magazine in March called Buffett the world's richest person, worth about $62 billion. Buffett is giving away most of his wealth to the Bill & Melinda Gates Foundation and four family charities.
  
  Bantam Dell, a division of Bertelsmann AG (BERT.UL) unit Random House Inc, said the biography's cover price is $35, a tiny fraction of the cost of buying one Berkshire share. In afternoon trading, Berkshire's Class A shares were up $2,350 at $118,100, while its Class B shares were up $87 at $3,935.

I have just made my pre-order of this copy from Amazon!