Warren Buffet's advice

The Sage of Omaha offers some rare financial advice in today's New York Times:

My Money and Mouth Say Equities

From that article (my italics):

"A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: 'I skate to where the puck is going to be, not to where it has been.'

I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: 'Put your mouth where your money was.' Today my money and my mouth both say equities."

I sincerely doubt that either fear or greed figure as much as a sound intellectual framework in Warren Buffet's active investing. If you read Benjamin Graham's Intelligent Investor you will get a better idea of why it is wise to look for bargains in a bear market and to be cautious in a bull market. Warren Buffet gleened much wisdom from Ben Graham. And he's got the dollars to prove it.

What Warren Buffet is really saying in this article is: Chill. Look for bargains in the market when things are sour. Have some confidence in the market, long run. Don't get so scared or so excited about any short run, even when everyone around you is scared or excited. Don't believe the hype. The market's going to be fine. Find some good quality stocks at good prices and have some confidence that they will perform well, generally, over time.

But most of all: Chill. The market is going to be fine. The country is going to be fine. And with a sounder understanding of the market and the world, life looks much better than you think.

Now go get 'em. Me too.

Why Paul Krugman is a moron

Paul Krugman demonstrates in his first column post-Nobel why I think he was such a remarkably poor choice for that award.

We Need to Increase Government Spending

America is now more than $10 trillion dollars in debt. With Medicare, Social Security and other unfunded obligations added to that mix, our debt stands at $59.1trillion dollars. We spend about a third of that money, around $3 trillion dollars, estimated conservatively, for interest on that debt.

We have a banking crisis as a function of banks engaging in similar behavior, spending and investing money beyond what they could generate in revenue. And the Federal government just added almost $700 billion dollars to that budget deficit to pick up the pieces from that unsustainable spending and investment on the part of banks.

And instead of making choices that might responsibly ensure financial health for the Federal government in the same way that Mr. Krugman would, presumably, want major banks to make to for the sake of their own financial health, focussing on an honest accounting of revenues that the government will take in, making cuts in spending and tradeoffs America needs to make to spend within that budget and to be able to afford whatever government may spend that money on, instead of spending more than $3 trillion of that money on servicing a budget deficit, Paul Krugman's response is to ignore that much more unsustainable and serious financial situation for the U.S. government and to ask the Federal government to spend more, amidst a record-breaking period of financial mismanagement on the part of the U.S. government.

And this is the asshole who just got the Nobel prize for economics.

This world has been turned upside-down by politics.

And Paul Krugman is case-in-point numero uno of just how mad people all over the world have gone to rationalize power.

This is not fiscal sanity that Paul Krugman is proposing. It is politics, as usual. And it is the kind of politics that has made of mess of liberal democracies. And we will continue to deal with that mess and all of the lying that makes it so until we face how foolish we have become.

Sooner rather than later, I hope.

The Democrats' downfall

Ron Brownstein asks the question that many ideological stalwarts in the Democratic party are asking themselves, right now.

The End of the Reagan Era?

It is the strongest source of Democratic hubris. And it will be their downfall, regardless of how much power they secure this election.

I am concerned about Democratic control of the Presidency and the Congress. But, regardless, this election is likely to be a moment of Democratic overreach and arrogance of power that demonstrates the poverty of ideas among Democrats, right now. It will also be their downfall, in a very similar way that the Bush Administration's abuses of power undermined the Republican party.

You can already see it in that interview of Joe the Plumber. What most people in power don't see, yet, is that most people want government out of their lives. No matter how much partisans romanticize otherwise. And that desire will not reverse itself to satisfy either Republican or Democratic victories. Republicans and Democrats will adapt themselves to what Americans want their government to do.

And that more fundamental reality - that those who aspire to govern in a liberal democracy must either lead with better ideas or follow the lead of citizens who want to determine their own lives - will determine the fate of liberal democratic politics over the next century and beyond, not the other way around.

And no Administration, Democratic or Republican, is immune to that more fundamental reality.