(Published February.23rd, 2020) Buffet Hails the “American Tailwind”, While the Fed Subsidizes the Short Term Lending Market and Increases its Balance Sheet By 10%

February.23rd, 2020

“Charlie and I happily acknowledge that much of Berkshire’s success has simply been a product of what I think should be called The American Tailwind. It is beyond arrogance for American businesses or individuals to boast that they have “done it alone.”

“The tidy rows of simple white crosses at Normandy should shame those who make such claims”.

Image source: Business Insider, “This Chart Shows The Astounding Devastation Of World War II”

“Those who regularly preach doom because of government budget deficits (as I regularly did myself for many years) might note that our country’s national debt has increased roughly 400-fold during the last of my 77-year periods. That’s 40,000%! Suppose you had foreseen this increase and panicked at the prospect of runaway deficits and a worthless currency. To “protect” yourself, you might have eschewed stocks and opted instead to buy 31⁄4 ounces of gold with your $114.75”.

That last sentence pretty much says it all, hence why we should never forget that irrespective of Buffets oracle like public image, just like any other CEO of a public company, he is a businessman first and foremost, and it’s pretty obvious what he is trying to do right now: reassure his shareholders, while maybe even enticing people to invest in his company.

He’s definitely right about one thing: these monstrous gains that many hedge funds have reported lately were certainly not without help, and if you’re thinking about investing right now, you better be thinking long term, because if this decade long bubble finally bursts, you could end up being stuck holding a bag for several years to come.

Lest we not forget, it was only last week that Charlie Munger was quoted as saying that he thought there was “too much wretched excess”.

And Charlie Munger is right. 40% of listed companies are losing money, and Telsa is now worth double that of Ford and GM combined — two of Americas oldest car manufacturers. In addition, lest we never forget that it was just last year that the financial news media was trumpeting the fact that we had finally entered into a bear market after just breaking the record for the longest bullrun in history.


Until, of course, this happened.

The very next day, the market recorded it’s biggest single day increase (nominally) in Dow Jones history.

Lest we also not forget that its been 6 months since the federal reserve started subsidizing the short term lending markets, and as of now, if you add up all the short term repo financing over that time period, you get a mind boggling $6.6 trillion, some of which includes term loans lasting as long as 32 days.

Lest we not forget that the fed has increased the size of its balance sheet by as much as 10% in as little as a single quarter without providing any kind of reasonable (or coherent) explanation as to why this is happening.

“Let’s now travel back through the two 77-year periods that preceded my purchase. That leaves us starting in 1788, a year prior to George Washington’s installation as our first president. Could anyone then have imagined what their new country would accomplish in only three 77-year lifetimes?”

As investors, lest we never forget to read between the lines of any public statement made by a CEO, Chairman, or Interested Shareholder, when deciding whether or not we should make an investment, because when you apply this concept to the above quote, the allusion seems to be crystal clear: be prepared to hold for a VERY long time.


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