Is Buffett Bullish, Or Just Full Of Bull?
At a time when business titans are being dismissed as the dumbest guys in the room, one icon–Warren Buffett, head of Berkshire Hathaway–has not been afraid to speak out optimistically about the future of the economy in general and the insurance business in particular.
As usual, Mr. Buffett doesn’t pull any punches. In his annual letter to shareholders, he warned that “the economy will be in shambles throughout 2009–and, for that matter, probably well beyond–but that conclusion does not tell us whether the stock market will rise or fall.”
Refreshingly, he took full responsibility for major investments that went south, and which cost his firm a bundle. “The tennis crowd would call my mistakes ‘unforced errors,’” he joked. (For more on what Mr. Buffett said about his insurance holdings, click here.)
Yet despite reporting a sharply lower profit of $4.99 billion in 2008, down from $13.21 billion the year before (hey, at least he had profits to report!), and even after getting hammered by nearly $7.5 billion in investment and derivative losses, Mr. Buffett remains optimistic about the country’s long-term economic future, and insists times have been worse.
Indeed, America faced far greater challenges during a pair of World Wars and The Great Depression, he noted.
“Though the path has not been smooth, our economic system has worked extraordinarily well over time,” he said. “It has unleashed human potential as no other system has, and it will continue to do so.”
He boldly concluded that “America’s best days lie ahead.”
As for insurance, he remains bullish. “Clearly our insurance CEOs have not had the wind at their back,” he wrote, “yet these managers have excelled to a degree…I never dreamed possible in the early days,” noting that his insurance units have generally outperformed the overall market in terms of underwriting profitability.
He was particularly high (and colorful) on opportunities for GEICO, noting that he and CEO Tony Nicely “feel like two hungry mosquitoes in a nudist camp. Juicy targets are everywhere.”
Is Mr. Buffett being bullish, or is he just full of bull?
There aren’t many CEOs left with the credibility of Mr. Buffett. If he says it could be worse, and things will turn around eventually, who am I to argue?
Indeed, I base my own hope on the fact that so much cash is sitting in “piggybanks”–personal and institutional. So many investors are on the sidelines, holding onto whatever money they have left, that at some point, when the economy finally stabilizes, I expect an explosion of capital back into the market.
People are bound to get antsy watching their holdings earn nothing (or actually costing them money to park), but they won’t get back into the game until the Obama administration somehow regains the public’s confidence that banks are reasonably sound and credit starts flowing again.
At that point, consumers will look to buy cars and other big-ticket items, and perhaps even the housing market will show signs of life. The stock market would then reboot and soar upward, prompting more job growth and launching a snowball effect on the positive side for a change.
This economy is just too damned big to stall for long, in my humble opinion.
What do you folks think?
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I don’t think the economy will begin its climb from our current slide to 1996 figures until the Treasury Department has a plan.
Tim Geithner, the new Secretary of the Treasury (yeah, the guy who couldn’t pay his taxes to the Treasury like the rest of us) does not even have his staff/deputies hired yet.
How can Wall Street gain confidence from this inaction during a crisis which he is ultimately in charge of?
Also, how can Wall Street gain confidence from this same man who was a deputy under the last administration, which was faulted for dropping the ball last fall?
When Mr. Geithner spoke before Congress last month, Wall Street was listening with baited breath to hear his plan.
He had none.
I agree with the sentiments of Mr. Buffet, and by extension, Mr. Friedman.
While investment income has taken a hit recently, Insurance organizations were in a soft market before the recent issues came to the fore.
They have worked to maintain pricing discipline. They are focused on operational efficiency, making strategic investments operationally in the policy administration, billing and claims functions.
While the end of the economic tunnel is not yet 100% in sight, footprint contraction by firms (both by product and by geography) should begin to harden markets and improve overall combined ratios.
This will only position firms better for when the investment arena begins to improve.