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Warren Buffett weighs in on China; Three blames: “Government, Wallstreet, China”

December 21st, 2010 Leave a comment Go to comments

Here is Warren Buffett talking to CNN Money about two months ago. I feel his basic message to the American people is right. I think he tried to stay away from the politics and offer a fairly optimistic view of the China-U.S. relationship. Quite a bit of ground covered in that short segment, actually. If one of my American friends ask me, I will provide basically the same nutshell. (There might be an obligatory 30 second commercial before Buffet appears.)

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  1. TonyP4
    December 21st, 2010 at 08:14 | #1

    The following is my comment on Buffett as an investor, so it is a little off the topic.

    With utmost respect, Buffett’s investment ideas may not be valid to us, today’s common retail investors. First, we do not make big bets like buying most of a company. Second, in many cases, his bets require him or his company to run the company. Third, he has connections and sweetheart deals that most of us do not have access to. Fourth, we can dump losers and sellers any time we want without public opinions. Fifth, most of his bets require him to pay extra to get in and get out.

    There are exceptions. If you follow him to buy Chinese Petro. (I did) and the Chinese auto company BYD (I could not find any US exchange at that time), you do good.

    Contrary to Mr. Buffett’s philosophy, I believe after 2000 buy-and-hold is dead. we will buy the company whose technology we do not know – but try to find time to understand it. I believe some companies will die eventually like Washington Post he owns unless they move out from the paper product.

    Many may beat his performance during 2000 to 2010 by a good margin, but they are still a nobody and will remain so. If Buffett only handled a portfolio of $5 millions or so, he would beat the market by a large margin year after year. No one including Peter Lynch can make a decent return with that size of his current portfolio.

  2. TonyP4
    December 21st, 2010 at 08:39 | #2

    China’s economy is not that rosy in the next 3 years as Buffett sees. There are many problems and obstacles. Most likely China will develop a larger internal market for her growing middle class. With rising wages, China will eventually lose cheap labor jobs to some countries and hopefully they will be offset by higher valued jobs.

    I’m optimistic and would like to see them as challenges instead and the glass is half full. The accomplishments in the last 30 years are just great.

  3. December 21st, 2010 at 10:45 | #3

    @TonyP4 #1 – you’ve been around, and I am with you on your views comparing the retail investor vs. someone wealthy like Buffett.

    #2 – Regarding the economy, I think his point was more that China has the right conditions now and started to unleash peoples potential like the U.S. did these last hundred years.

  4. King Rat
    December 21st, 2010 at 12:35 | #4

    A perspective on the China-US relationship:

    The US creates trillion$ of dollar$ out of thin air when total US debt is >$50 trillion. Fiat money pays for military campaigns to encircle China. Fiat money “buys” global resources nations are dependent on. Fiat money inflates US asset values creating a “wealth effect” so Americans can go out a buy up more of the world. Others freeze and starve cuz their countries can’t print money. What does the Chinese worker earn per day so China can export goods for hard currency so they can pay for resource companies that US companies buy with fiat money. The US economic system (lump in those countries that back US$ hegemony) is a ponzi racket (print ever more money to keep it going).

    Citizens of the world: why do you starve and freeze in the dark? You too can enjoy the AmeriKan lifestyle. Instead of selling off your companies, choice real estate, resources and daughters to US racketeers, print your own money and buy from each other. Create another economic system. With those $trillions if US IOUS that have been accumulated, buy up US companies and their country.

    What follow when the racketeers will no longer be able to buy oil with their fiat money? Why do you let them get hold of resources and encircle you now?

    Isn’t it ironic how we have come to look to China as a champion freedom vs. the Global Bankster Mafia.

  5. December 21st, 2010 at 14:47 | #5

    @King Rat

    “fiat money” is not as simple as that. Consider this scenario:

    1. Feb prints $1trillion to pay back China.
    2. China will in turn take this $1trillion and buy up properties within the U.S. or around the world.

    No matter what, that $1 trillion will enter the world’s pool of USD. The Fed printing $1 trillion of “fiat money” will simply dilute the whole world’s holdings of USD by that amount. Who owns the most USD? Of course it is the American public.

    We have written about Dagong on this blog in the past. The Chinese sovereign ratings firm still rated U.S. AA-. The U.S. credit rating is still good enough such that much of the world continue to invest in U.S. bonds.

    If you ask the Indians, Vietnamese, and just about most of the developing countries around the world, they absolutely welcome this “fiat money” as a form of investment.

    And don’t forget about the fact that American public and corporations still own tremendous amount of properties (companies, land, resources, whatever) around the world. While the U.S. is on an uncontrollable spending binge, the situation is definitely not as dire as your comments make it out to be.

  6. December 21st, 2010 at 18:24 | #6

    In the absence of strong vigilant governments, corporations and unions collude to enrich the elite.

    Only China, and the other socialist market economies, wield sufficient centralized power to prevent the elite from enriching themselves with the deceptions of marketing and selling worthless stocks and money, and turning of the people’s hard earned savings into nothing.

    The Nay-sayers continued to unable to believe that China is holding off the economic storms that have battered the Free markets of the West.

    But they simply mistook their own weak manipulated governments controlled by the corporate lobbyists as what they expect for China.

    No. The Chinese government has many unilateral powers to stabilize its economy, and it is not afraid to use them.

  7. King Rat
    December 21st, 2010 at 18:39 | #7

    Yes China buys US debt to payroll US consumption of Chinese goods. Chinese workers toiled hard to raise reserves to buy those bonds.

    Quantitative easing is a different story. The bonds are bought with money created out of thin air –another $2 trillion.

    Unintended consequence of QE2 is inflation of commodities by US banksters and speculators who benefit from the easy Fed money.

    The US has $150 trillion of unfunded liabilities ($4 trillion owed to foreigners). Meanwhile Americans get tax cuts. The Argentinas & Irelands can’t create money out of thin air. They have to borrow and when they can’t pay, the bankster’s apply a good dose of medicine to the unwashed workers.

    Can China buy oil or resource industries by printing Yuan?

    (About $1 trillion US dollars is in circulation. Two thirds is held outside US. Plus there’s credits created thru fractional reserve banking.)

  8. December 21st, 2010 at 23:48 | #8

    @raventhorn2000, #6
    Very interesting perspective.

    @King Rat

    Unfortunately China can’t, because the RMB is not the international reserve currency as you well know. Though you probably know too that China and Russia have decided to do their bilateral trades in their own currencies, completely bypassing the USD. China is also doing currency swaps with other trade partners.

    During the last G20 summit, it was the U.S. v.s. the world. So if the U.S. continues to use the USD in a detrimental way against the rest of the world, that will only build momentum for a different type of currency system than the one we have today.

    Nothing is set in stone. Our world is in a constant flux of actions and reactions.

    Curious, where did that $150 trillion come from?

  9. King Rat
    December 22nd, 2010 at 09:29 | #9

    Google “unfunded liabilities”. The point of the ~$150 trillion is that liabilities in addition to the debt also need to be funded. They can’t be inflated away without lowering the standard of living. Where will revenues come from to cover the liabilities? They can no longer exact tribute from satellites hooked on debt by economic hit men. What’s left of US manufacturing ($70/hr to build a car) can’t compete. They keep paying their unionized workers ever more BUT they want China to raise the value of the yuan.

    Yes the world is in flux and competition for resources will grow more intense. If global citizens don’t create just mechanisms for trade (e.g. China buying resource companies with hard earned currency), there will be more “wars for oil” and strategic bases. China is to back the Euro and buy Portugese debt. Good move. New trading blocks are being created.

    The US broke the Soviet Union using economic warfare. The US was able to out spend. The “money printing” of the reserve currency must be stopped. QE is a treat to the global economic system and the security of nations.

  10. TonyP4
    December 22nd, 2010 at 13:34 | #10

    USD is being used as a trade currency and it gives US a tool to print money. Will US enforce it with their advanced weapons? Will China trade oil and other commodities with Yuan? Not in the near term.

    China has the control to appreciate the Yuan. It would lose cheap labor jobs to India by doing so, but it can buy commodities/oils at lower cost. Not in the near term neither.

    QE (you add the number) is a quick solution for the politicians who never look at more than 4 years. The children and grandchildren have to pay for the debts eventually. Alternatively, inflation can solve the problem. If you have a million in USD, after inflation you still have a million USD but your buying power could be half.

  11. King Rat
    December 23rd, 2010 at 02:30 | #11

    With QE2, the Federal Reserve wants to force retail investors to hand their savings over to the ponzi market racketeers. “If you don’t “invest”, you will loose your savings” the racketeers threaten as they drive up inflation (the intended consequence of QE2). Banks pay nothing on deposits. Bonds are falling.
    Common sense says “If you can’t afford to loose it, don’t “invest” in the market.” If you are a retiree, you watch your savings get eaten away. Fed Inflation = taxation on savings.

    The invisible hand that guides the capital markets belongs to the mafia puppeteers behind the curtain. The politicians are the puppets. The market is a house of cards. Their democracy is a fraud.

  12. TonyP4
    December 23rd, 2010 at 06:49 | #12

    @King Rat
    Retail investors and retirees have plenty of options esp. in a democratic country like US. They can invest in gold, US properties (now highly deflated from before), other commodities, multi national companies, foreign companies…

  13. King Rat
    December 24th, 2010 at 03:45 | #13

    Only a greater fool would buy into a market manipulated by the “invisible hand”.

    Now that the empire isn’t collecting tribute, e.g. like good o’l opium days, life of US consumers is been sustained by debt and those unfunded liabilities. It’s been a good run gorging at those all you can eat prime rib smorgs. But we are really asking a lot of off-white workers in sweat shops to keep toiling to finance this consumption so that the world economic system doesn’t crash. Time for a new system.
    Since the last market crash, the structural problems with the US haven’t been fixed. They’ve been papered over, made worse and kicked down the road. The risks are compounded.

    If you are going to buy gold, don’t buy the paper variety. Buy lots of lead to keep the gold safe. And don’t let the government know, cuz they’ll confiscate it to pay off the banksters.
    Real estate? When the U$ gets devalued and oil will costs $200 US/barrel how will you collect rents from people who can’t pay? A piece of land with trees to keep you warm to go with the gold and lead is a good hedge. I wouldn’t call it “investing”.

    Within a few months well see how China deals with property inflation. Then it may be a good time to put savings into Chinese stocks, e.g., Bank of China. Do they give away stock options and pay $millions in bonuses to the hired help? The yuan is expected to go up. But if you buy ADRs, you are still holding US$s and you will still have to keep warm and safe.

    Understand the risks when you look at investment options. And stay true to what you believe amounts to creating a just world.

    Here’s good article on situation in China and global big picture:
    google: Who will start the next crisis, China or the U.S.?


  14. TonyP4
    December 24th, 2010 at 07:29 | #14

    @King Rat
    The best analysts around the world predict the US market will rise to 12% or so (I forgot the exact number) in 2011 and they are pretty much correct for 2010 (still have about 5 more days to go). It is from Barron’s Round Table from my memory and same discussion in SeekingAlpha.com.

    Personally I do not most Chinese big companies that are over-valued but smaller companies could explode (some could implode). For the next 5 years, the action should be in China. However, I do not trust most financial statements and some government data. China should have a similar department like SEC in US to regulate/enforce company filings, insider trading…

  15. Hugh Campbell
    January 7th, 2011 at 18:13 | #15

    An America Lost in Squanderville

    The United States’ trade gap is the proverbial “leak-in the-dike” with its de-simulative effect on our recovery. In November 2003, Warren Buffett in his Fortune, Squanderville versus Thriftville article recommended that America adopt a balanced trade model. The fact that advice advocating balance and sustainability, from a sage the caliber of Warren Buffett, could be virtually ignored for over seven years is unfathomable. Media coverage that China has kept it currency undervalued is a gross understatement, it has actually been keeping the U.S. dollar over-valued; which adversely affects all our trade with all our trading partners, not just trade with China. Until action is taken on Buffett’s or a similar balanced trade model, by the powers that be, America will continue to squander time, treasure and talent in pursuit of an illusionary recovery.

  16. January 7th, 2011 at 22:36 | #16

    The fact that advice advocating balance and sustainability, from a sage the caliber of Warren Buffett, could be virtually ignored for over seven years is unfathomable.

    Indeed, it is rather mind boggling. Now that Obama is cutting back just a tiny bit on military spending, watch for the U.S. media spelling doom and gloom on the military front.

    Media coverage that China has kept it currency undervalued is a gross understatement, it has actually been keeping the U.S. dollar over-valued; which adversely affects all our trade with all our trading partners, not just trade with China.

    Why don’t you advocate the Fed printing $50 trillion dollars? The Fed can do that overnight. Your problem solved. 😉

    But, seriously, if we follow your logic, why do you think the Chinese are willing to work for Americans for cheap on purpose? And, just for how long do you think they are willing to do that?

  17. Hugh Campbell
    January 9th, 2011 at 09:07 | #17

    Regarding: Why do you think the Chinese are willing to work for Americans for cheap on purpose?
    Work cheap to gain markets share and hollow-out industries in America!
    Regarding: And, just for how long do you think they are willing to do that?
    Until China has global monopolies in the industries they have hollowed-out, then do what monopolists throughout history have done, namely, raise prices and price gouge.
    Very creative on the part of China, don’t you think?

  18. January 9th, 2011 at 14:24 | #18

    @Hugh Campbell,

    Hey – if you really believe that, why don’t we see sly, creative, clever people in Wall Street working for cheap (free if they can afford it) so they can take over other people’s jobs and others’ industrieis to create a truly long-lasting monopoly?

    Why don’t poor people in general lower their wage more so they can hoard all the jobs for themselves and then turn on the rich once they have?

    China works for her pay because that is the market price for her work right now.
    Her citizens work because the work is profitable today. This beggar thy neighbor appears in very special circumstances for niche markets. It doesn’t apply systemically to any one country for any prolonged periods of time.

  19. TonyP4
    January 10th, 2011 at 13:01 | #19

    Most American factories cannot compete with China as $20 per hour cannot compete with $2 per hour (very rough estimate). In addition, it is more expensive to do business in US with the high taxes, lots of regulations, unions, legal expenses, unexciting jobs/working environment…

    US is a developed country while China is developing. Some days China may reach to the same status of US and will have similar problems.

    There are several factors that can change all the Chinese advantage. 1. Other developing countries like India. 2. Trade wars. 3. Closing US/Eu markets. 4. Internal wars (with Taiwan). 5. Social unrest in China. 6. High expense to ship products…

  20. Chops
    January 12th, 2011 at 02:19 | #20

    Western nations match China’s game

    When General Electric approached the U.S. Export-Import Bank in 2009 wanting to sell 150 locomotives for $477 million to Pakistan, there was a sense of futility. GE had already lost an earlier bid to a Chinese firm. Why would Pakistan buy American-made locomotives this time?

    After all, China was a powerful competitor that routinely offered low-cost financing – below-market interest rates, easy repayment terms – that cut tens of millions of dollars off the bottom line of its international deals.

    But in a case that underscores a significant shift in how the United States and the rest of the developed world are dealing with the challenge of China’s economic might, the U.S. Ex-Im Bank decided to fight back. In February of last year, U.S. Ex-Im informed Pakistan’s Ministry of Railways that it would take the unprecedented step of matching China’s below-market-rate financing terms. And on Dec. 9, the executive committee of Pakistan’s National Economic Council approved the purchase of the locomotives. While the case remains caught up in Pakistan’s famously Byzantine court system, thanks to a lawsuit brought by a Chinese-backed plaintiff, the Ex-Im decision underscores an evolving new view on China.

    “There’s a new willingness to take on China, to compete toe-to-toe with China on financial terms,” said Fred Hochberg, the chairman of the Ex-Im Bank. “This is a policy change that we will compete with anyone who’s not compliant.”

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