Buffett: A-Share Bull Market Has 3 More Years

Warren Buffett said China's A-share market has another 3 years to go.

Chinese stocks offer greater investment opportunity than American stocks.

iFeng: 股神巴菲特眼中国A股：至少还能牛三年！

Will Buffett Invest in China's A-Shares?

Chinese investors love Warren Buffett and Phoenix will broadcast the Berkshire Hathaway meeting live. Investors in China are wondering if Buffett will announce an intention to buy A-shares.

iFeng:

China: Will Warren invest in A-shares?

As China plays an increasingly important role in the global economy, China's capital market is more open, more and international standards. Since last year, A-share stock market in the world for a ride at the head, aroused the interest of many foreign investors. So, Buffett will be interested in it?

The latest news is that the shareholders' meeting, Chinese investors will be very high importance, Berkshire will be dedicated to the establishment of an Office for Outer provide Chinese simultaneous translation for these participants. Berkshire will be set up outside the hall opposite the venue Hilton hotel with a large high-definition television broadcast live the General Assembly. One of the team's core members from China will arrange for an interpreter to live, Berkshire staff is to ensure the sound and simultaneous Assembly attached to the outer hall sound system.

You know, start from Buffett's shareholders meeting held so far, in addition to sign language interpreters, Berkshire has never had any formal offers foreign language translation for the international participants. Benevolence, this rare sign of whether Warren explained the importance of the A shares? Shareholders meeting, whether there will be related to sources? We'll see. Phoenix FINANCE will provide you with live coverage of the event.

The addition of a Chinese language translation of the Berkshire Hathaway meeting is definitely a good sign for China, but not necessarily for A-shares.

Then again, with a retail dominated market, China's share market is one of the best ones for long-term patient investors willing to wait out the long periods of pessimism and shorter periods of hyper optimism. It may take a pullback in the market to get Buffett involved though.

Warren Buffett continues to lose prestige

I proposed the thesis that Warren Buffett will go from investor hero to investor goat during the transition in social mood from peak to nadir. I have been chronicling the fall of Warren Buffet, you can see previous posts under the Warren Buffett tag. There are now multiple story lines: Buffett's involvement with ratings agencies, derivatives, government bailouts, municipal bond debt, Keystone pipeline, taxes and politics. Many of the stories are due to his business decisions and the decline in his popularity would occur without any politics, but the politics adds insult to injury. Anytime a popular figure gets involved with politics, they invariably will turn off the other side. This creates a well-spring of negative sentiment and adds a new set of eyes. How many politicians have we seen go down in flames once their personal and business life attract the attention of investigative media?

The latest Buffett scandal is one of these latter cases, where his political involvement is now blowing up in his face. See Bloomberg's Buffett’s NetJets Countersued by U.S. for Unpaid Taxes

NetJets Inc., the private-plane company owned by Warren Buffett’s Berkshire Hathaway Inc. (BRK/A), was countersued by the U.S. over $366 million in taxes and penalties.

NetJets in November sued the U.S., saying the federal government had wrongly imposed taxes, interest and penalties totaling more than $642.7 million.

Claiming the federal Internal Revenue Service wrongfully assessed a so-called ticket tax -- an excise tax on payments made in exchange for air transportation -- to private aircraft owners maintaining their own planes, the Columbus, Ohio-based company demanded refunds and abatements.

The federal government, in a revised answer and countersuit filed yesterday in federal court in Columbus, rejected NetJets’ claims and alleged that four of the company’s units owe unpaid taxes and penalties.

Dr. Stephen Leeb, Chairman & Chief Investment Officer of Leeb Capital Management, also had this to say about Buffett in a recent King World News interview:

“I hate to say this because I’ve been a fan of Warren Buffet for so many years, but he lives and breathes the S&P. That’s his Bible, so to speak, stocks. He comes out and makes a comment (denigrating gold) that is so off base and so misleading, it sort of tells you even the best and the smartest are getting a little bit desperate in terms of trying to hide what is really happening to this world.

There is no doubt in my mind that if you were to ask Buffett straight out, ‘Let’s suppose, Berkshire Hathaway, someone makes you an off for the entire stock. Would you rather that offer be in dollars or in gold?’

Now if he tells you dollars, you say, ‘Mr. Buffett, read above where you point out that dollar values have gone down by 80% or 90% over the past 30 to 50 years. Down relative to what? Gold. So you (Mr. Buffett) are telling me despite dollar values being down and steadily going down, you would still rather take dollars than gold? Get real.’

My point here is when you get guys like Buffett so desperate that they are making these contradiction in terms (3 paragraphs from each section in the article) and seeing them contradict each other, people like that making those kinds of mistakes tells you there is a certain psychology of desperation. People are scared to death, especially policymakers.”

Buffett would no doubt say he'd use the cash to buy other assets, rather than sit on it. However, the point is that Buffett's attacks on gold and defense of stocks does not take into account the change in social mood that could affect these asset values for years to come. Furthermore, as his experience with derivatives, currency and commodity plays shows, Buffett isn't following the advice he gives individual investors. One possible outcome is that Buffett does well with derivative bets and complex financial arrangements, offsetting the decline in his stock portfolio. Meanwhile, individual investors only holding stocks lose a large portion of their assets. Worst of all for Buffett, gold outperforms stocks and suddenly everyone hates Buffett and thinks he's an old codger out of tough with the times.

Of course, if Buffett is lambasted and say, has a negative cover story, it might well signal the time to go long and buy-and-hold stocks.

Buffett's reputation takes another hit

I have several posts about Warren Buffett relating to socionomics. The basic argument is that Buffett was the darling of the bull market and he may turn into the goat of the bear market. Things are proceeding apace as Buffett spends more time involved in politics than he does in investing. The latest "scandal" has moved him into the realm of crony capitalist: Buffett's Burlington Northern Among Pipeline Winners

Warren Buffett's Burlington Northern Santa Fe LLC is among U.S. and Canadian railroads that stand to benefit from the Obama administration's decision to reject TransCanada Corp.'s Keystone XL oil pipeline permit.

Right-wing bloggers and crony capitalist watchdogs were all over this story, as Buffett has been Obama's go-to-guy for economic advice and sound bites. What fueled the interest initially was that Bloomberg appeared to have scrubbed the article from their site, but it turns out it was just a coding glitch due to an update.
If you click through the Warren Buffett tag you can see some older arguments against Buffett. The point here is the public perception of Buffett and the willingness of the press to run negative stories. By becoming more political, Buffett opens himself up to more scrutiny, which means if there's any truth or valid complaints about him, they are more likely to receive a public hearing than if he faded into the investing sunset. And as social mood declines, those attacks receive a wider hearing.

Closing the barn door

US Inquiry Eyes S&P Ratings of Mortgages

The Justice Department is investigating ratings on mortgages. The article mentions that Fitch and Moody's are not mentioned, but may also be part of the investigation. It would be strange for them not to be included, since they behaved exactly the same, but if not, Warren Buffett's support for Obama is paying off again.

In any event, the government is at least four years late. When social mood was more positive, they had no interest in shaking up the market. Now that housing has cratered and most of the extreme excess has left the market, the government is putting a case together.

The fall of Warren Buffett continues...

Schiff - Gold up $27, Dow Futures Down 276, Buffett Wrong

When asked about Warren Buffett’s comments where he said S&P made a mistake by downgrading US debt Schiff responded, “Well he owns a big chunk of Moody’s doesn’t he? Moody’s hasn’t lowered their rating, so somebody is mistaken, it’s either Moody’s or S&P. It stands to reason that Buffett would say his competitor was mistaken rather than himself.

What’s important, people are criticizing S&P, and I think it’s kind of funny because they are criticizing them for missing the subprime crisis. Well, why not criticize Moody’s and Fitch for the same reason, and what makes us think that their AAA rating is right?

So, potentially the real mistake they’ve made is to have had the US government at AAA so long because they (the US) are just as AAA as those mortgage backed securities that went under.”

Buffett takes a direct hit on CNBC

I figured the Munger story wouldn't die, but now things have heated up quickly, with a guest on CNBC taking shots at Buffett. Here is Michael Steinhardt on CNBC:

ZeroHedge transcribed some of the conversation in Michael Steinhardt Tells The Truth, The Whole Truth, And Especially The Truth About The Greatest "Con Job": Warren Buffett

"Here in America's the biggest thing we have to worry about is how long it will take for Buffett to come down to earth where he should have been a long time ago, so people like you begin to realize his reality and get off some cloud."

"What is Buffett’s reality,”

“His reality is that he is the greatest PR person of recent times. And he has managed to achieve a snow job that has conned virtually everyone in the press to my knowledge…and is remarkable that he continues to do it.”

“Really,” Quintanila responded with a shake: “so outperforming the S&P, I don’t know how many hundred times, over the course of his portfolio…doesn’t matter?”

“Ooo, I’m not sure he’s done that. What he has done, and this is a great measure of the man’s wonder, is that he gave away two and a half cents for the first 70 years of his life- he gave away nothing- and then in one fell swoop gave almost all of his money thoughtlessly, to one guy. And from that moment on became the greatest advocate of philanthropy and pitched all the bumbling billionaires to do the same thing. That takes a special guy having given away nothing and then in one fell swoop ‘boom!’ he gives it all away and pitches the other yo-yos to give it away too. Now what does that say? I think that’s worth reflecting.”

ZeroHedge has coverage of the Munger story: Munger "Recuses Himself" As Frontrunning Focus Shifts To His BYD Purchase

Steinhardt has done the equivalent of saying the Emperor has no clothes. Given the current social mood, I suspect this will not pass unnoticed. ZeroHedge is already playing it up, but look for more articles and discussion, from a more negative angle, in the coming days and weeks.

And there's always this explanation of Warren Buffett from Kevin Depew, circa 2009:

The fall of Warren Buffet, continued

Last year I wrote, The Fall of Warren Buffett and Another look at the fall of Warren Buffet. It was a look at the municipal debt situation and its relation to insurers owned by Warren Buffett and also comments by his associate, Charlie Munger. Now, there's even more mud being flung in the direction of Munger and David Sokol, who resigned from Berkshire Hathaway over an unethical stock transaction.

ZeroHedge has the scoop in Forget David Sokol, Is The SEC About To Tell Charlie Munger To "Suck It In"?

On March 31st, David Sokol appeared on CNBC Squawk Box (to the most distraught Becky Quick we have ever seen) in an attempt to explain why his purchase of of Lubrizol Corp, prior to Berkshire Hathaway's purchase of the Company, was perfectly acceptable. In attempting to provide evidence of this“perfectly acceptable” practice David Sokol said a curious thing (17 minutes 15 seconds in):

"I don’t believe I did anything wrong. Charlie Munger owned 3% of BYD before he asked me to go look at it."

Because we all know if everyone is doing it, then it isn't illegal or unethical. Especially if everyone is a member of the Berkshire inner circle. But if the SEC as is now widely reported, is about to make a public spectacle out of David Sokol (if not actually press civil charges because, well, the SEC doesn't actually pursue large scale securities fraud), shouldn't they be looking at ole' Charlie "Suck It In" Munger?

Elliot Wave International has a just released article titled, Why "Financial Heroes" Fall from Grace, about the fall of Alan Greenspan, which is perfectly timed given this revelation.

Warren Buffett is the ultimate icon of the bull market. David Sokol was seen as a possible successor to Buffett, but now he is gone. If his comments about Munger and BYD are true, then Munger may also be in trouble.

Note that from a socionomic perspective, I'm not concerned with whether Sokol and Munger's actions rise to the level of criminality or even if they are unethical. I am only focused on the shift in social mood and how it affects the public perception of these men. In an earlier post I wrote that Buffett could go from a hero to a goat, especially if the social mood is in a major decline. He has yet to be directly hit by a scandal, but his image is taking hit after hit.

At the least, his image may slip to that of other wealthy investors, such as Kirkorian and Ichan, rather than the popular icon of the investing public. At worst, any unethical slip or slightest legal transgression could be blown up into a major scandal. A lot depends on whether Mr. Buffett has made any mistakes, but the social mood will play a big role in how much scrutiny he receives and how any mistake is perceived. At this point, he has done nothing wrong, but his image is nonetheless tarnished because of the change in social mood.

Buffett buying China Rare Earth?

It makes some sense since he's invested in a Chinese car company that needs rare earth elements, but at this point I think it's more rumor than anything. The impetus for this rumor was the halting of China Rare Earth (0769.HK) for a share placement.

Rare hopes for a Buffett bonanza

Rumors that US billionaire Warren Buffett will take part in a share placement by China Rare Earth (0769) has raised hopes the firm may be the next to get the "Midas touch" after PetroChina (0857) and BYD (1211).
The rare earth and refractory products maker is selling 100 million new shares to raise HK$395 million, Reuters reported.

At HK$3.95 each, the offer is a 10 percent discount to the stock's last closing price of HK$4.39 on Wednesday.

An over-allotment issue of 20 million shares could boost the total amount HK$474 million. Analysts estimate CRE's share price to soar after it resumes trading because of the "Buffett effect."

Another look at the fall of Warren Buffet

In Socionomics—The Fall of Warren Buffett, I looked at the municipal bond debt situation. Buffett has a municipal bond insurance operation and he's invested in a ratings agency, while at the same time saying there's a big problem and that the government will bail out the states and cities.

Over at Global Economic Analysis, Mish Shedlock has been criticizing comments by Buffett partner Charlie Munger.

Amazing Arrogance, Gall, Chutzpa, and Unmitigated Effrontery from Berkshire Hathaway. Here is Munger's quote:

“Hit the economy with enough misery and enough disruption, destroy the currency, and God knows what happens,” Munger said. “So I think when you have troubles like that you shouldn’t be bitching about a little bailout. You should have been thinking it should have been bigger.”

And here's Mish:

The one thing we desperately need is a culture change. Instead, we made too big to fail, too bigger to fail. We preserved a culture that benefits billionaires like Munger and greedy CEO's that helped cause this mess. That culture benefits no one else.

Yet Munger wants us to “suck it in and cope” and expect to be happy that he did not get wiped out.

You know what? It would have been a damn good thing if the culture died and assholes like Munger got wiped out. Munger just proved beyond a shadow of a doubt Wall Street's culture was not worth saving.

Mish received a lot of email and did a couple follow up posts. The latest is

Janet Tavakoli on the "Myth of the Amoral Debtor"; An email from a Charlie Munger student; "Business as Usual"

Here are a couple passages from reader emails to Mish:

While I knew that Buffett was a hypocrite, I never expected it from Munger who states that he lived on principles. I sold all my Berkshire shares today.

And:

Dear Mr. Buffett:

I suppose if one lives long enough, they eventually see all their living, revered heroes let them down in some way. Some succeed in this fashion far more than others. And man let me say this, “you blew me away.”

There's more at Mish's site.

It remains to be seen what Buffett does over the course of the next few years. It is likely that, as a symbol of the bull market, he will fade from prominence as long as the social mood declines and the public turns against investing. Should he continue to take actions or make comments (in this case they weren't his, but his partner's) that draw more public ire, there's the potential for him to turn from investing hero to investing goat.

Municipal bonds threaten banking system

David Goldman looks at municipal debt on bank balance sheets in
The Bank-Insurance-Municipal Daisy Chain (Why the Federal Government Will Bail Out the States)

If municipal debt actually defaulted, the capital position of the banking system would be impacted, bank preferred debt might stop paying, and the holders of bank preferred debt–starting with the insurers–would be in serious trouble.

...Why buy munis? For all of Warren Buffett’s dire warnings about municipal finances, the fact is that the federal government can’t let major municipal debtors (at the level of states, for example) go under without also bringing down the banking system and everything else.

If it goes, it all will go together. That’s why munis ultimately will be bailed out. A Democratic administration whose core constituency is public employee unions will do everything in its power to keep them happy (and a Republican Congress, which we likely will have in 2011, may frustrate this). But ultimately it’s a matter of survival.

Just something to think about when someone says that a few defaults in the muni bond market won't cause any problems.

And don't forget Americas #1 investor also expects a bailout of municipal bonds and sells insurance on munis:

Socionomics—The Fall of Warren Buffett

Socionomics—The Fall of Warren Buffett

This week Buffett defended the ratings agencies to Congress.
Gasparino Deconstructs Buffett's Hypocrisy
Now this:
Buffett Expects ‘Terrible Problem’ for Municipal Debt

Warren Buffett, whose Berkshire Hathaway Inc. has been trimming its investment in municipal debt, predicted a “terrible problem” for the bonds in coming years.

“There will be a terrible problem and then the question becomes will the federal government help,” Buffett, 79, said today at a hearing of the U.S. Financial Crisis Inquiry Commission in New York. “I don’t know how I would rate them myself. It’s a bet on how the federal government will act over time.”

You own Moody's my good man, why don't you have them work on the problem?

“It would be hard in the end for the federal government to turn away a state having extreme financial difficulty when they’ve gone to General Motors and other entities and saved them,” Buffett told shareholders in Omaha, Nebraska, at Berkshire’s May 1 annual meeting. “I don’t know how you would tell a state you’re going to stiff-arm them with all the bailouts of corporations.”

In my opinion, the public is not going to allow another bailout, not until the sky is falling. But, could Buffett have another reason to expect bailouts?

Buffett set up a municipal bond insurance company in December 2007 as competitors, including Ambac Financial Group Inc. and MBIA Inc., struggled to maintain top ratings. Berkshire has scaled back sales as Buffett said the rates that bondholders are willing to pay don’t match the risk.

Why yes, he stands to lose hundreds of millions, if not billions, if municipal bonds go down.

Buffett owns the ratings agency, he owns the bond insurance company, he says its a terrible problem, and he expects a bailout. My prediction is that Buffett finishes this fall in social mood as a villain, rather than a hero.

China‘s Going Electric!

Dongfeng Nissan said it plans to roll out its first electric car in China in 2011, one year earlier than scheduled.

Nissan's alliance with Renault earlier signed a cooperative memorandum on promoting the use of electric vehicles with China's Ministry of Industry and Information Technology.
Under the memorandum, Nissan will provide information about the development of electric vehicles and formulate plans of the construction of battery recharge networks and promote the wide use of electric vehicles.

东风日产拟于2011年在华推出电动车

大谷俊明透露，东风日产原计划在2012年将电动车引入中国，但是由于形势的变化，将这一时间提前到了2011年。他表示，电动车不是只要能动就可以，而是在不牺牲驾乘体验的前提下实现零排放。因此，东风日产一旦开始将电动车引入中国，一定是以大规模的推进为目标的。

　　4月初，雷诺-日产联盟宣布与中国工业和信息化部（下称工信部）在中国国内推广零排放汽车项目上达成合作伙伴关系。根据协议，日产汽车将为工信部提供电动汽车发展的相关信息，制定包括电池充电网络建立和维护、促进电动汽车大规模使用的综合规划。

　　大谷俊明说，根据工信部的部署，中国将在13个城市进行电动车的试点工作，这一过程中，需要考虑充电站等基础设施如何布局，如何出台鼓励措施。虽然双方的合作还在信息交流阶段，但2011年已经不远，东风日产会尽快启动小规模的试点工作。

Shares of BYD (1211.HK) popped after Warren Buffett's purchase became public:

Some say it's mystic
It's electric
Boogie woogie, woogie
You can't resist it
It's electric
Boogie woogie, woogie
You can't do without it
It's electric
Boogie woogie, woogie