"And if an epitaph be my story, I'd have a short one ready for my own: I had a lover's quarrel with the world." -- Robert Frost
Thursday, March 5, 2009
Wednesday, March 4, 2009
The 4th Amendment and the Exclusionary Rule
Philip Kushner's letter on the 4th Amendment is one of the best legal letters I've seen--thanks in advance to the WSJ:
Paul H. Rubin complains that the exclusionary rule "hinders" law enforcement in detecting and prosecuting suspected crimes ("The Exclusionary Rule's Hidden Costs," op-ed, Feb. 28). He is probably right. The Bill of Rights contains many such provisions that restrict government's ability to detect and punish crime, including the right to be secure against unreasonable searches and seizures, the right to be arrested only upon probable cause, the bar against double jeopardy, the right to counsel, the right against self-incrimination, and the right to due process of law. Evidently, the Founding Fathers believed that there is a higher value than efficient law enforcement.
Paul H. Rubin complains that the exclusionary rule "hinders" law enforcement in detecting and prosecuting suspected crimes ("The Exclusionary Rule's Hidden Costs," op-ed, Feb. 28). He is probably right. The Bill of Rights contains many such provisions that restrict government's ability to detect and punish crime, including the right to be secure against unreasonable searches and seizures, the right to be arrested only upon probable cause, the bar against double jeopardy, the right to counsel, the right against self-incrimination, and the right to due process of law. Evidently, the Founding Fathers believed that there is a higher value than efficient law enforcement.
As for Prof. Rubin's claim that the exclusionary rule "encourages criminals to increase their illegal activity," that is far-fetched. Exclusion of evidence is extremely rare; exclusion of evidence that prevents prosecution and conviction is even rarer. Who engages in criminal conduct based on the assumption that the exclusionary rule will prevent their prosecution? Few citizens, including criminals, can predict when evidence will be suppressed. After the Supreme Court's recent decision in Herring v. U.S., which instructs lower court judges to engage in a kind of cost-benefit analysis in deciding whether to exclude evidence, no judge can say with confidence when evidence will be excluded either.
We have constitutional rights, many of which protect us from the government, also called law enforcement. Either we have remedies for violations of these rights or we do not. A right without a remedy is worthless.
Philip S. Kushner
Cleveland
Mr. Kushner, I have just one question: when is President Obama going to appoint you as a federal judge?
Interactive Unemployment Chart (2009)
The NYT published this interactive unemployment chart, showing rates of unemployment nationwide:
http://www.nytimes.com/interactive/2009/03/03/us/20090303_LEONHARDT.html
http://www.nytimes.com/interactive/2009/03/03/us/20090303_LEONHARDT.html
The Steve Nash Paper
I love basketball. As an attorney, I handle discrimination claims. What do these two things have in common? Well, some researchers just answered that question:
Using data from the National Basketball Association (NBA), we examine whether patterns of workplace cooperation occur disproportionately among workers of the same race. We find that, holding constant the composition of teammates on the floor, basketball players are no more likely to complete an assist to a player of the same race than a player of a different race. Our confidence interval allows us to reject even small amounts of same-race bias in passing patterns. Our findings suggest that high levels of interracial cooperation can occur in a setting where workers are operating in a highly visible setting with strong incentives to behave efficiently.
http://www.nber.org/papers/w14749
In other words, it's the Larry Bird/John Stockton/Steve Nash paper. But was there enough of a sample size to create credible results? Other than Steve Nash, Kevin Love, Kyle Korver, and the Gasol brothers, who else would they have covered? Surprisingly, The Arsenalist--a site named after the popular soccer team--answers my question (click on "The Arsenalist"). I can't believe I left out AK-47.
Speaking of interracial cooperation, here is a post featuring a must-see link--it leads to a video featuring "twins" Steve Nash and Baron Davis. Enjoy.
Credit goes to Marginal Revolution for the NBER paper link.
Using data from the National Basketball Association (NBA), we examine whether patterns of workplace cooperation occur disproportionately among workers of the same race. We find that, holding constant the composition of teammates on the floor, basketball players are no more likely to complete an assist to a player of the same race than a player of a different race. Our confidence interval allows us to reject even small amounts of same-race bias in passing patterns. Our findings suggest that high levels of interracial cooperation can occur in a setting where workers are operating in a highly visible setting with strong incentives to behave efficiently.
http://www.nber.org/papers/w14749
In other words, it's the Larry Bird/John Stockton/Steve Nash paper. But was there enough of a sample size to create credible results? Other than Steve Nash, Kevin Love, Kyle Korver, and the Gasol brothers, who else would they have covered? Surprisingly, The Arsenalist--a site named after the popular soccer team--answers my question (click on "The Arsenalist"). I can't believe I left out AK-47.
Speaking of interracial cooperation, here is a post featuring a must-see link--it leads to a video featuring "twins" Steve Nash and Baron Davis. Enjoy.
Credit goes to Marginal Revolution for the NBER paper link.
Tuesday, March 3, 2009
A Smart Counterargument to Libertarians
The Green Bag, a legal journal, just published a fantastic Almanac and Reader (2008). Law students and lawyers should read the excerpt, "Making Your Case--The Art of Persuading Judges," by Justice Antonin Scalia and Bryan Garner. Although I majored in English and took legal writing courses in law school, Scalia's excerpt is a must-read for anyone who wants to write effectively.
The entire book can be found here.
The Almanac has other wonderful articles, including one by J. Harvie Wilkinson III, "Toward One America--A Vision in Law." [page 296] Although I am inclined towards libertarianism, Wilkinson made me see why others are against the view that individual rights and self-interest reign supreme:
Let's restore a constitutional respect for community. It is futile to expect a healthy nation in the absence of a health sense of community. Community instills within us the sense that we live for something larger and more meaningful than just ourselves... Communities are built around shared purposes and values, one of which is surely a respect and appreciation for individual rights. But there must likewise be the sense that individuals contribute to, as well as take from, this larger whole of which we as single persons are but parts...
It must still be asked whether the notion of free-floating, i.e. non-textual, constitutional rights of personal autonomy has not helped to deprive us of a sense of connectedness that is indispensable to the formation of a collective identity. There is a limit to which individual intimacies should be at the sufferance of majorities, but there are likewise limits to the extent that democratic majorities in a state or nation can be deprived of the communal right to promote cherished values. To enshrine a sanctity of self in our founding charter without textual or historical warrant may be just as pernicious as the attempt to enshrine discrimination against those whose personal choices may for good and legitimate reason fail to conform to the majority's own...
When we next drive through the countryside or take a moment's pause, we might reflect on what we get from living in society. We did not build our own home; make our own car or clothes; or invent the computers, phones, lights, or appliances we not take so much for granted. Left alone, we could not enjoy a concert, educate our children, put out a fire, raise capital, or take a trip. We would, in short, be miserable and helpless. [Green Bag Almanac and Reader, 2008, at 303-304]
Wilkinson makes some good points and ultimately claims the middle ground. Continuing on the topic of good writing, he demonstrates the most effective writing style--moving your audience to a reasonable middle ground. However, I still disagree with the idea that communal rights should trump individual rights. The foundation of freedom is built upon two principles: 1) limitation of government power against its own citizens/residents; and 2) respect for the minority. Establishing a community sounds fine in theory, but when push comes to shove, the minority view is usually drowned out, and the government may run roughshod over their rights. Yet, that's precisely when the law and the courts should enter--at the inconvenient time when the majority, already backed by their elected representatives, are attempting to limit the individual's or the minority's freedom.
The law is designed for inconvenient times. When it's heart-wrenching and difficult, that's when the court's pen should be unsheathed to calm the masses and to protect the individual. When the Jehovah's Witnesses are being persecuted and beaten in the schools for not taking the oath of allegiance, that's when the Court should intervene. When a political party is castigating a minority group for a nation's troubles, that's when a strong judge must use the law and remind citizens to let others alone. When the government and the majority see outside threats and want to use torture, that's when the courts should immediately remember why they exist--to use the consistent, steadying rule of law to prevent individual oppression. (By the way, federal judge Jay Bybee and UC Berkeley Professor John Woo encouraged the Bush II administration to define torture as "equivalent in intensity to the pain accompanying serious physical injury, such as organ failure, impairment of bodily function, or even death." [p. 545] I'll take my individual rights now, please--I don't want any part of that community.)
Viewing his ideas in this light, Wilkinson sounds more like he's arguing for fascism than freedom when he talks about courts respecting the community. In times of prosperity, I would agree with him; however, it's when stress and conflict enter the picture that the rights of the individual are too often ignored in the interests of community and safety. Sadly, in almost every major conflict between community and the individual, courts have initially sided with the majority at the expense of the individual. See segregation (Plessy v. Ferguson); refusing to take the pledge of allegiance (Minersville School District v. Gobitis); Guantanamo Bay (it took seven(!) years for a court to finally reject this executive order); Chinese Exclusion Act (1882); and free speech rights (Dennis v. United States). In tough times, I wouldn't put my faith in the community--not with that historical record.
Speaking of the middle ground, Judge Henry Friendly apparently embodied it. He was said to have the "gift of moderation," the "silken string running through the pearl-chain of all virtues." [Id. at 379, Michael Boudin, "Judge Henry Friendly and the Mirror of Constitutional Law."] As an attorney, Judge Friendly seems like my kind of judge--someone who personifies moderation. We have a local judge who embodies this moderation principle, too. I have never seen him lose his temper. Even when he has gotten irritated with my inexperience, his irritation has been swift and has not prevented him from briefly explaining what I am doing wrong. I don't like to name names when it comes to judges, but Santa Clara County is lucky to have a judge like him.
Monday, March 2, 2009
Book Review: The Great Depression of Debt
After reading Warren Brussee's The Great Depression of Debt, you may feel compelled to buy canned goods, water, and weaponry. If a Depression is coming and is as bad as Brussee thinks it will be, Americans are in deep trouble (and yes, "trouble" is a euphemism for something else). Here's one typical excerpt:
[I]t will take until 2012 or 2013 before the economy bottoms out and our economy again begins to grow. In the meantime, the stock market will drop dramatically, unemployment will be over 15%, and the dollar will lose its position as lead currency. Our country will be humbled as it is forced to adapt to a far lower and simpler standard of living. [page xii, hardcover, Wiley, 2009]
The problem with Brussee, however, is that his unpolished writing style mutes his persuasive power. For example, he uses far too many exclamation points, which is especially inappropriate when his message is that a financial apocalypse is near. In fact, I almost stopped reading after seeing yet another unnecessary exclamation point. While I'm glad I continued reading, Brussee needs to improve his writing style. In any case, below are his major points.
1. Brussee neatly summarizes the problems of having a large trade deficit:
If these [U.S.-debt-buying] countries get tired of the current decline in the dollar, which makes their investments net losers, they will will instead use the deficit funds to buy investment instruments elsewhere, for example in Europe. However, the United States needs these countries to buy our bonds because that is how we fund our deficit spending. So, if the foreign investors start to hesitate to buy our treasury bonds, the interest on the bonds will have to be raised high enough that the foreign investors won't go elsewhere. [page 28]
From what I've read elsewhere, if the current state of affairs continues, at least 2 to 3% of America's budget will go to paying interest to foreign investors. That's not a politically stable situation.
2. Listen up, market bears and Nouriel Roubini fans: Brussee thinks the S&P 500 will hit 423. As of February 27, 2009, the S&P 500 was 735.09, so Brussee believes the stock market--which is at 12 year lows--is 42% overvalued (See page 66).
It gets worse--according to Brussee, "[b]y 2013, people in the United States will have given up...the stock market will be akin to poison for most people...We will withdraw from many trade relationships with other countries, having set up trade barriers in response to our country's huge financial and unemployment problems." [page 83] These predictions may come true, but Brussee takes his pessimism to a level of hysterics, which ruins his credibility:
Retirement age will be changed in 2011 to age 70...A law will be passed that companies cannot lay off any more people due to reduced sales...The birth rate will go to zero...No one will want to bring a child into the very tenuous economy that will be gripping the United States. [Page 82]
Let's examine these claims. First, Brussee is vague when he refers to "retirement age," but he is probably concerned with Social Security. However, Social Security is not America's worst problem--Medicare is the much larger elephant in the room. Social Security's problems can be temporarily alleviated by raising payroll taxes and limits. Both these solutions will probably occur before Congress raises the retirement age to 70 for Social Security benefits. As for extending Medicare's eligibility age, it is very difficult to deny senior citizens necessary health care. In addition, senior citizens are a powerful voting bloc and will use their political power to prevent any major changes to Medicare. (See The Simpsons' "Wild Barts Can't Be Broken," Season 10, Episode 11, for a hilarious reminder of senior citizens' voting power.)
Second, the day Congress--with its influential corporate lobbyists--passes a law preventing layoffs is when a socialist party gains majorities in Congress. (Before you make jokes about the Democrats, remember which president increased our deficit by trillions of dollars in just eight years.) What will most likely happen first is that Congress will make it more expensive for companies to lay off workers, increasing corporate unemployment insurance contributions, or lengthening the time period employees can accept unemployment insurance. At most, Congress may require companies to pay some severance pay to laid-off employees.
Third, the idea that America's "birth rate will go to zero" requires an almost impossible set of events to occur: one, all illegal and legal immigration must stop; two, the Catholic Church must cease having influence over its adherents; and three, unplanned pregnancies must cease, or abortions must become as ubiquitous as Starbucks. Yet, none of these things will happen in our lifetimes. Whoops, there goes your credibility, Mr. Brussee. That's a shame, too, because Brussee makes some very good points. See below.
3. Brussee is against Obama's shovel-ready recovery plan, but for clean and renewable energy:
Where possible, government money given to industry should be accompanied by matching funds from the receiving company. In this way, the involved company has a vested interest in success... It will be very tempting to invest money on rebuilding our infrastructure, like roads, bridges, dikes, and so on. This was done in the thirties depression, and we are still enjoying the benefits of this work in our parks and in our infrastructure. But, as desirable as this is, funds invested in infrastructure will not lead to self-sustaining additional jobs...We must stay focused on meaningful job creation...Eventually the goal must be to develop completely electric vehicles. [pages 111-112]
Brussee is saying that shovel-ready stimulus is only a short-term fix. If the government spends money on building bridges, at some point, the bridge will be built, and the job will go away, and it's back to square one. Prior to reading the above paragraph, I had not thought about this now-obvious point.
4. Some random facts:
a. The wealthiest 1 percent of people currently own 40 to 50 percent of the country's [America's] wealth. [page 68]
b. Inflation is running at a 6 percent annual rate. [page 37]
c. In Smithers and Wright's Valuing Wall Street, the authors state that, when using a buy-and-hold strategy, investors never lost money when they were invested in stocks for 20 years. [page 145]
5. What makes Brussee more interesting than the average world-is-coming-to-an-end "economist" is that he's not a gold bug--he's a TIPS (Treasury Inflation Protected Securities) bug:
[G]old actually went down in price from 1933 (when the United States went off the gold standard) to 1968. It also generally lost money after its peak in 1978. So, it appears that for most periods between 1933 and 2007, the real value of gold did not keep up with inflation...Although gold may be a good crisis hedge...gold has generally not been a good inflation hedge. [page 123]
Investors interested in Brussee's investing tips may want to explore iShares Barclays TIPS Bond (TIP) and/or Vanguard Inflation-Protected Securities (VIPSX).
6. Here is Brussee's investment strategy:
[B]uying the most recent stocks added to the Dow, when the S&P 500 price/dividend is 17.2 or below; [and buying] stocks anytime the price/dividend ratio on the S&P is at or below 17.2. We will not only putting investment money into buying these stocks, but we will also sell all the TIPS we have accumulated and use those funds to buy stocks. When the price/dividend again goes above 17.2, we will stop buying stocks with new investment money and start buying TIPS. If the price/dividend goes above 28, we will sell all the stocks we have accumulated and use the funds from the sale to buy TIPS. [pages 116, 261]
Got that? What's the price/dividend ratio right now? Good question--that kind of current data is harder to find for average investors. Googling "price/dividend ratio" got me nothing current or useful.
7. Brussee is obviously a number junkie, and I loved his inflation stats at the end of his book [See page 296 et al]. Brussee lists the inflation rate in each year, from 1900 to 2007, along with some other numbers. You can get more economic numbers by going to Robert Shiller's website, located here.
Overall, Brussee has some compelling ideas. It's unfortunate he intersperses unlikely scenarios in between his rational ideas, which reduces his credibility. Readers deserved more respect and less sensationalism, especially with all the other good ideas in The Great Depression of Debt.
Disclosure: I own shares of TIP.
[I]t will take until 2012 or 2013 before the economy bottoms out and our economy again begins to grow. In the meantime, the stock market will drop dramatically, unemployment will be over 15%, and the dollar will lose its position as lead currency. Our country will be humbled as it is forced to adapt to a far lower and simpler standard of living. [page xii, hardcover, Wiley, 2009]
The problem with Brussee, however, is that his unpolished writing style mutes his persuasive power. For example, he uses far too many exclamation points, which is especially inappropriate when his message is that a financial apocalypse is near. In fact, I almost stopped reading after seeing yet another unnecessary exclamation point. While I'm glad I continued reading, Brussee needs to improve his writing style. In any case, below are his major points.
1. Brussee neatly summarizes the problems of having a large trade deficit:
If these [U.S.-debt-buying] countries get tired of the current decline in the dollar, which makes their investments net losers, they will will instead use the deficit funds to buy investment instruments elsewhere, for example in Europe. However, the United States needs these countries to buy our bonds because that is how we fund our deficit spending. So, if the foreign investors start to hesitate to buy our treasury bonds, the interest on the bonds will have to be raised high enough that the foreign investors won't go elsewhere. [page 28]
From what I've read elsewhere, if the current state of affairs continues, at least 2 to 3% of America's budget will go to paying interest to foreign investors. That's not a politically stable situation.
2. Listen up, market bears and Nouriel Roubini fans: Brussee thinks the S&P 500 will hit 423. As of February 27, 2009, the S&P 500 was 735.09, so Brussee believes the stock market--which is at 12 year lows--is 42% overvalued (See page 66).
It gets worse--according to Brussee, "[b]y 2013, people in the United States will have given up...the stock market will be akin to poison for most people...We will withdraw from many trade relationships with other countries, having set up trade barriers in response to our country's huge financial and unemployment problems." [page 83] These predictions may come true, but Brussee takes his pessimism to a level of hysterics, which ruins his credibility:
Retirement age will be changed in 2011 to age 70...A law will be passed that companies cannot lay off any more people due to reduced sales...The birth rate will go to zero...No one will want to bring a child into the very tenuous economy that will be gripping the United States. [Page 82]
Let's examine these claims. First, Brussee is vague when he refers to "retirement age," but he is probably concerned with Social Security. However, Social Security is not America's worst problem--Medicare is the much larger elephant in the room. Social Security's problems can be temporarily alleviated by raising payroll taxes and limits. Both these solutions will probably occur before Congress raises the retirement age to 70 for Social Security benefits. As for extending Medicare's eligibility age, it is very difficult to deny senior citizens necessary health care. In addition, senior citizens are a powerful voting bloc and will use their political power to prevent any major changes to Medicare. (See The Simpsons' "Wild Barts Can't Be Broken," Season 10, Episode 11, for a hilarious reminder of senior citizens' voting power.)
Second, the day Congress--with its influential corporate lobbyists--passes a law preventing layoffs is when a socialist party gains majorities in Congress. (Before you make jokes about the Democrats, remember which president increased our deficit by trillions of dollars in just eight years.) What will most likely happen first is that Congress will make it more expensive for companies to lay off workers, increasing corporate unemployment insurance contributions, or lengthening the time period employees can accept unemployment insurance. At most, Congress may require companies to pay some severance pay to laid-off employees.
Third, the idea that America's "birth rate will go to zero" requires an almost impossible set of events to occur: one, all illegal and legal immigration must stop; two, the Catholic Church must cease having influence over its adherents; and three, unplanned pregnancies must cease, or abortions must become as ubiquitous as Starbucks. Yet, none of these things will happen in our lifetimes. Whoops, there goes your credibility, Mr. Brussee. That's a shame, too, because Brussee makes some very good points. See below.
3. Brussee is against Obama's shovel-ready recovery plan, but for clean and renewable energy:
Where possible, government money given to industry should be accompanied by matching funds from the receiving company. In this way, the involved company has a vested interest in success... It will be very tempting to invest money on rebuilding our infrastructure, like roads, bridges, dikes, and so on. This was done in the thirties depression, and we are still enjoying the benefits of this work in our parks and in our infrastructure. But, as desirable as this is, funds invested in infrastructure will not lead to self-sustaining additional jobs...We must stay focused on meaningful job creation...Eventually the goal must be to develop completely electric vehicles. [pages 111-112]
Brussee is saying that shovel-ready stimulus is only a short-term fix. If the government spends money on building bridges, at some point, the bridge will be built, and the job will go away, and it's back to square one. Prior to reading the above paragraph, I had not thought about this now-obvious point.
4. Some random facts:
a. The wealthiest 1 percent of people currently own 40 to 50 percent of the country's [America's] wealth. [page 68]
b. Inflation is running at a 6 percent annual rate. [page 37]
c. In Smithers and Wright's Valuing Wall Street, the authors state that, when using a buy-and-hold strategy, investors never lost money when they were invested in stocks for 20 years. [page 145]
5. What makes Brussee more interesting than the average world-is-coming-to-an-end "economist" is that he's not a gold bug--he's a TIPS (Treasury Inflation Protected Securities) bug:
[G]old actually went down in price from 1933 (when the United States went off the gold standard) to 1968. It also generally lost money after its peak in 1978. So, it appears that for most periods between 1933 and 2007, the real value of gold did not keep up with inflation...Although gold may be a good crisis hedge...gold has generally not been a good inflation hedge. [page 123]
Investors interested in Brussee's investing tips may want to explore iShares Barclays TIPS Bond (TIP) and/or Vanguard Inflation-Protected Securities (VIPSX).
6. Here is Brussee's investment strategy:
[B]uying the most recent stocks added to the Dow, when the S&P 500 price/dividend is 17.2 or below; [and buying] stocks anytime the price/dividend ratio on the S&P is at or below 17.2. We will not only putting investment money into buying these stocks, but we will also sell all the TIPS we have accumulated and use those funds to buy stocks. When the price/dividend again goes above 17.2, we will stop buying stocks with new investment money and start buying TIPS. If the price/dividend goes above 28, we will sell all the stocks we have accumulated and use the funds from the sale to buy TIPS. [pages 116, 261]
Got that? What's the price/dividend ratio right now? Good question--that kind of current data is harder to find for average investors. Googling "price/dividend ratio" got me nothing current or useful.
7. Brussee is obviously a number junkie, and I loved his inflation stats at the end of his book [See page 296 et al]. Brussee lists the inflation rate in each year, from 1900 to 2007, along with some other numbers. You can get more economic numbers by going to Robert Shiller's website, located here.
Overall, Brussee has some compelling ideas. It's unfortunate he intersperses unlikely scenarios in between his rational ideas, which reduces his credibility. Readers deserved more respect and less sensationalism, especially with all the other good ideas in The Great Depression of Debt.
Disclosure: I own shares of TIP.
Sunday, March 1, 2009
Berkshire Hathaway's 2008 Annual Letter
Every year, Warren Buffett issues a fun, easy-to-read letter to his shareholders. Here are this year's highlights:
Cash is King: As the year progressed, a series of life-threatening problems within many of the world’s great financial institutions was unveiled. This led to a dysfunctional credit market that in important respects soon turned non-functional. The watchword throughout the country became the creed I saw on restaurant walls when I was young: “In God we trust; all others pay cash.”
Government will get bigger without a firm hand: Moreover, major industries have become dependent on Federal assistance, and they will be followed by cities and states bearing mind-boggling requests. Weaning these entities from the public teat will be a political challenge. They won’t leave willingly.
The government's interference in credit markets is causing some disruptions: Though Berkshire’s credit is pristine – we are one of only seven AAA corporations in the country – our cost of borrowing is now far higher than competitors with shaky balance sheets but government backing. At the moment, it is much better to be a financial cripple with a government guarantee than a Gibraltar without one.
On bond insurers: By yearend 2007, the half dozen or so companies that had been the major players in this business had all fallen into big trouble. The cause of their problems was captured long ago by Mae West: “I was Snow White, but I drifted.” [Mae West, of course, was the rebel Hollywood sex symbol known for her wit.]
Public pensions are still a major concern: Local governments are going to face far tougher fiscal problems in the future than they have to date. The pension liabilities I talked about in last year’s report will be a huge contributor to these woes. Many cities and states were surely horrified when they inspected the status of their funding at yearend 2008. The gap between assets and a realistic actuarial valuation of present liabilities is simply staggering.
For more on this important topic, see my previous posts, here, here, here, here, and here.
On buying ConocoPhillips (COP) and the future of oil prices: I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year. I still believe the odds are good that oil sells far higher in the future than the current $40-$50 price. [Looks like investors who want to get a better deal than Mr. Buffett may want to consider buying COP.]
Just darn good writing and advice: Beware the investment activity that produces applause; the great moves are usually greeted by yawns.
On derivative contracts: Receivables and payables by the billions become concentrated in the hands of a few large dealers who are apt to be highly-leveraged in other ways as well. Participants seeking to dodge troubles face the same problem as someone seeking to avoid venereal disease: It’s not just whom you sleep with, but also whom they are sleeping with.
Questions at this year's annual meeting will be handled differently--various journalists will sort through the questions and pick which ones to ask: The journalists and their e-mail addresses are: Carol Loomis, of Fortune, who may be emailed at cloomis@fortunemail.com; Becky Quick, of CNBC, at BerkshireQuestions@cnbc.com, and Andrew Ross Sorkin, of The New York Times, at arsorkin@nytimes.com. From the questions submitted, each journalist will choose the dozen or so he or she decides are the most interesting and important. (In your e-mail, let the journalist know if you would like your name mentioned if your question is selected.)
Disclosure: I am bullish on ConocoPhillips (COP).
Cash is King: As the year progressed, a series of life-threatening problems within many of the world’s great financial institutions was unveiled. This led to a dysfunctional credit market that in important respects soon turned non-functional. The watchword throughout the country became the creed I saw on restaurant walls when I was young: “In God we trust; all others pay cash.”
Government will get bigger without a firm hand: Moreover, major industries have become dependent on Federal assistance, and they will be followed by cities and states bearing mind-boggling requests. Weaning these entities from the public teat will be a political challenge. They won’t leave willingly.
The government's interference in credit markets is causing some disruptions: Though Berkshire’s credit is pristine – we are one of only seven AAA corporations in the country – our cost of borrowing is now far higher than competitors with shaky balance sheets but government backing. At the moment, it is much better to be a financial cripple with a government guarantee than a Gibraltar without one.
On bond insurers: By yearend 2007, the half dozen or so companies that had been the major players in this business had all fallen into big trouble. The cause of their problems was captured long ago by Mae West: “I was Snow White, but I drifted.” [Mae West, of course, was the rebel Hollywood sex symbol known for her wit.]
Public pensions are still a major concern: Local governments are going to face far tougher fiscal problems in the future than they have to date. The pension liabilities I talked about in last year’s report will be a huge contributor to these woes. Many cities and states were surely horrified when they inspected the status of their funding at yearend 2008. The gap between assets and a realistic actuarial valuation of present liabilities is simply staggering.
For more on this important topic, see my previous posts, here, here, here, here, and here.
On buying ConocoPhillips (COP) and the future of oil prices: I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year. I still believe the odds are good that oil sells far higher in the future than the current $40-$50 price. [Looks like investors who want to get a better deal than Mr. Buffett may want to consider buying COP.]
Just darn good writing and advice: Beware the investment activity that produces applause; the great moves are usually greeted by yawns.
On derivative contracts: Receivables and payables by the billions become concentrated in the hands of a few large dealers who are apt to be highly-leveraged in other ways as well. Participants seeking to dodge troubles face the same problem as someone seeking to avoid venereal disease: It’s not just whom you sleep with, but also whom they are sleeping with.
Questions at this year's annual meeting will be handled differently--various journalists will sort through the questions and pick which ones to ask: The journalists and their e-mail addresses are: Carol Loomis, of Fortune, who may be emailed at cloomis@fortunemail.com; Becky Quick, of CNBC, at BerkshireQuestions@cnbc.com, and Andrew Ross Sorkin, of The New York Times, at arsorkin@nytimes.com. From the questions submitted, each journalist will choose the dozen or so he or she decides are the most interesting and important. (In your e-mail, let the journalist know if you would like your name mentioned if your question is selected.)
Disclosure: I am bullish on ConocoPhillips (COP).
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