Warren Buffett's Greatest Fear Has Nothing To Do With Money

[touchring]

Ironically, his good friend's inaction has brought forward this event by at least 10 years.


http://www.businessinsider.com/warre...st-fear-2013-1

Warren Buffett's Greatest Fear Has Nothing To Do With Money

Linette Lopez

• Warren Buffett is the fourth richest man in the world, so you would think money would be his tip-top priority, but it's not.

What he's really worried about, according to Morningstar (h/t Josh Brown) is a nuclear, biological or chemical attack on Washington D.C. or New York City. At least that's what he said in 2002.
From Morningstar:
"We're going to have something in the way of a major nuclear event in this country. It will happen. Whether it will happen in 10 years or 10 minutes, or 50 years ... it's virtually a certainty."
Buffett's worried that the technology it takes to make these terrible fears a reality are becoming more accessible to those that wish to do the United States harm, and eventually our enemies are going to get their hands on these awful weapons.
Can't say he sweats the small stuff.

[GRG55]

Re: Warren Buffett's Greatest Fear Has Nothing To Do With Money

Maybe that's why he lives in Omaha...

[BadJuju]

Re: Warren Buffett's Greatest Fear Has Nothing To Do With Money

Good to hear Business Insider thinks reporting 11-year-old news is good news.

I think a lot can be said about the fact that nothing of the sort has happened in spite of ample opportunity and the ease of which a biological or chemical attack could occur. Either the security apparatus is that good, which it probably isn't, or the amount of psychopaths that would engage in these attacks are very, very few in number. So that should be rather reassuring. Still, it is certainly a concern and one we should all be vigilant about; however, the fear of these things should not override reason and taint our view of the world in the way 9/11 has.

[aaron]

Re: Warren Buffett's Greatest Fear Has Nothing To Do With Money

I got a buddy in the FBI; they stop all kinds of attacks that he could not talk about.

[photon555]

Re: Warren Buffett's Greatest Fear Has Nothing To Do With Money

But just think of all the economic activity such an attack, if successful, would generate; renovating, rebuilding, re-bribing. Just the threat of an attack has been an enormous boost to the security industry. An actual attack would probably boost GDP by half a percentage point. Or at the very least offer a really good excuse for a low GDP growth rate. Of course, the markets would tank, and then rebound in time. What an opportunity if only a person could know in advance when such an attack would occur. BTW, does anyone know of an insider who has started taking an extreme short position on the market? You can tell me. I'll keep it to myself, for sure.

[touchring]

Re: Warren Buffett's Greatest Fear Has Nothing To Do With Money

What an opportunity if only a person could know in advance when such an attack would occur. BTW, does anyone know of an insider who has started taking an extreme short position on the market? You can tell me. I'll keep it to myself, for sure.

I don't believe it is possible to know when such an attack could happen, it is possible to predict the seriousness of such attacks based on what technology is available to these people.

Current methods would inflict not more than one or two thousands casualties - assuming a tall building collapses as a result of the attack. But if nukes fall into the hands of rogue states or terrorists, it could be in the tens to hundreds of thousands. And if such nukes can be made into suit cases, which I believe is the technology that Buffett says, the chance of it happening would increase.

The other thing is the economic loss when you need to vacate a 10-20 mile radius of ground zero, if it were a major city, the whole city needs to be vacated.

[c1ue]

Re: Warren Buffett's Greatest Fear Has Nothing To Do With Money

This is pretty low credibility stuff.

Buffet publishes a widely read report every year - never once has he mentioned nuclear or chemical weapons. He has, however, talked at great length about the trade deficit, the debt issue, and income and tax inequality.

Some nuggets from the latest:

As is well-known, the U.S. went off the rails in its home-ownership and mortgage-lending policies, and for these mistakes our economy is now paying a huge price. All of us participated in the destructive behavior – government, lenders, borrowers, the media, rating agencies, you name it. At the core of the folly was
the almost universal belief that the value of houses was certain to increase over time and that any dips would be inconsequential. The acceptance of this premise justified almost any price and practice in housing transactions. Homeowners everywhere felt richer and rushed to “monetize” the increased value of their homes by refinancings. These massive cash infusions fueled a consumption binge throughout our economy. It all seemed great fun while it lasted. (A largely unnoted fact: Large numbers of people who have “lost” their house through foreclosure have actually realized a profit because they carried out refinancings earlier that gave them cash in excess of their cost. In these cases, the evicted homeowner was the winner, and the victim was the lender.)

Investments that are denominated in a given currency include money-market funds, bonds, mortgages, bank deposits, and other instruments. Most of these currency-based investments are thought of as “safe.”

In truth they are among the most dangerous of assets. Their beta may be zero, but their risk is huge.

Over the past century these instruments have destroyed the purchasing power of investors in many countries, even as the holders continued to receive timely payments of interest and principal. This ugly result, moreover, will forever recur. Governments determine the ultimate value of money, and systemic forces will sometimes cause them to gravitate to policies that produce inflation. From time to time such policies spin out of control.

Even in the U.S., where the wish for a stable currency is strong, the dollar has fallen a staggering 86% in value since 1965, when I took over management of Berkshire. It takes no less than $7 today to buy what $1 did at that time. Consequently, a tax-free institution would have needed 4.3% interest annually from bond investments over that period to simply maintain its purchasing power. Its managers would have been kidding themselves if they thought of any portion of that interest as “income.”

Still an old school bankster, but at least he's open and honest about it.

Some interesting comments on gold - though ironic given Buffet's huge silver purchase not so long ago. But then, Buffet is a bottom feeder (not a pejorative, an adjective) so naturally a high gold price is not attractive to him.

The second major category of investments involves assets that will never produce anything, but that are purchased in the buyer’s hope that someone else – who also knows that the assets will be forever unproductive – will pay more for them in the future. Tulips, of all things, briefly became a favorite of such buyers in the 17th century.

This type of investment requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further. Owners are not inspired by what the asset itself can produce – it will remain lifeless forever – but rather by the belief that others will desire it even more avidly in the future.

The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.

What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis.

As “bandwagon” investors join any party, they create their own truth – for a while.

Over the past 15 years, both Internet stocks and houses have demonstrated the extraordinary excesses that can be created by combining an initially sensible thesis with well-publicized rising prices. In these bubbles, an army of originally skeptical investors succumbed to the “proof” delivered by the market, and the pool of buyers – for a time – expanded sufficiently to keep the bandwagon rolling. But bubbles blown large enough inevitably pop. And then the old proverb is confirmed once again: “What the wise man does in the beginning, the fool does in the end.”

Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A.

Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?

Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators {Or Central Banks - c1ue}– must continually absorb this additional supply to merely maintain an equilibrium at present prices.

A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.

Admittedly, when people a century from now are fearful, it’s likely many will still rush to gold. I’m confident, however, that the $9.6 trillion current valuation of pile A will compound over the century at a rate far inferior to that achieved by pile B.

You can see all of these reports at:

http://www.berkshirehathaway.com/letters/letters.html