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It's so bad that Wall Street rolled out Warren Buffett for the second time to do what he rarely does - last October in a New York Times op-ed to calm investors and affirm his faith in "the long-term prosperity of the nation's many sound companies."On CNBC March 9, he wasn't as sanguine saying the economy has "fallen off a cliff. (It's) in a shambles. Not only has (it) slowed down, people have changed their behavior like nothing I have ever seen (and government policy or at least its message has been) muddled." Then commenting on the importance of personal housing wealth and how much of it's been lost, he went the old adage one better about "the emperor ha(ving) no clothes."
"On top of that," he said, "the emperor doesn't have any underwear either." As a result, "We are in a very, very vicious negative feedback cycle" because people are scared to death and with good reason.
"Everything will be all right. We do have the greatest economic machine that man has ever created....(It's because) we ha(ve) a system that work(s). (It's gotten us through) six panics in the 19th century (and) in the 20th century we had the Great Depression and World Wars, all kinds of things. But we have a system, largely free market, rule of law, equality of opportunity (unleashing) human potential (so) your grandchildren will live better than your kids."
"The machine works (and buying) equities (is) the way to (profit from it). If (you) buy the right businesses, (you'll) do very well....American business will be worth more over time....Stocks will be worth more over time. I guarantee you that the Dow will be a lot higher."
Last October in his New York Times op-ed, Buffett said he's "buying American stocks." On March 9, he repeated the message even though the economy "is a shambles." Serious enough to need "the Oracle of Omaha" to save it, or at least try by making a public spectacle of himself on TV, and it wasn't the first time although others were more focused on his business or general view of things.
This time, stressing America's long-term strength, he ignored its fundamental weaknesses and systemic failure at the root of today's problems:
-- a system so unstable, crisis-prone, exploitive, unfair, self-destructive, and corrupted it can't endure;
-- Keynes warning about the consequences of "enterprise becom(ing) the bubble on a whirlpool of speculation;"
-- the inevitable decay that Marx and others predicted;
-- the untenability of great wealth disparities with few having too much and many too little - something untenable in the long run;
-- Lincoln's June 16, 1858 message to the Illinois Republican State Convention - that "A house divided against itself cannot stand;" slavery was the issue then; today it's inequality, human need, and growing poverty under a fundamentally unworkable system favoring wealth over public welfare.
Something else bothered Buffett as well - that Berkshire Hathaway (B-H) stock lost half its value, and the company had its worst ever year in 2008 since Buffett took it over in 1965 when it was a family-run textile maker. He's also not immune to credit default swap (CDS) problems, having increased his position to $14 billion as of year end 2008, and last year took hundreds of millions in write-offs as a result.
Further, some question B-H's health going forward given the current environment, insurance being his main business, and the worrisome CDS spreads on his debt. According to Merrill Lynch's Michaels Hartnett and Penn, they trade at wider spreads than those for Vietnam. They point out that GE is no better off as their swaps are wider than Russia's at a time its economy is reeling like many others.
Through March 11, B-H and GE were two of the six remaining companies rated AAA by S & P, according to CreditGuru.com. The others are ExxonMobil, Toyota, J & J, and ADP. In the late 1970s, 58 companies had the rating. That was then. This is now as two more of the mighty have fallen.
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