Wednesday, June 23, 2021Volume 2, Issue 32 “Today is a milestone for me. In 2006, I pledged to distribute all of my Berkshire Hathaway shares – more than 99% of my net worth – to philanthropy. With today’s $4.1 billion distribution,
Pounds of Salt: The Fed’s Epistemic Arrogance
“The dots are not a great forecaster of future rate moves. And that’s not because—it’s just because it’s so highly uncertain. There is no great forecaster of the future—so dots to be taken with a big, big grain of salt.”
Bernanke Persists in ‘Pushing on a String’ With QE2
The mid-term election results appear to match what market participants expected in the days leading up to voting yesterday. We will refrain from political commentary other than to make the observation that there is a difference between “benign gridlock” when the country’s course is essentially sound and gridlock when our fiscal situation is heading for disaster — which to us seems more like a suicide pact than a political strategy. Meanwhile, the Federal Reserve is set to announce the details of its second round of quantitative easing later today. QE2 is essentially a euphemism for printing money, which in our modern economy takes the form of the Federal Reserve buying treasury bonds of intermediate to long term maturities. Read this article for more commentary.
Roger Lowenstein: The Fed Should Burst Our Bubbles
Roger Lowenstein is the author of five books covering financial markets. His latest book, The End of Wall Street, was published in April. Mr. Lowenstein is also the author of an excellent biography on Warren Buffett written in 1995 which we reviewed previously. In an article for the Washington Post today, Mr. Lowenstein makes the case for more timely intervention by the Federal Reserve when financial market bubbles are forming. Read this article for a brief excerpt and more commentary.
Using Mortgage Debt to Hedge Against Inflation
Most value investors tend to avoid the use of leverage in their portfolios due to the old saying: “The market can stay irrational longer than you can stay solvent.” An investor can be entirely correct about his or her investment choices but the market may fail to recognize this before ruinous margin calls result in forced asset sales at depressed values. While there are many successful hedge fund managers who skillfully employ leverage and engage in short selling, most individual investors should stay far away from such strategies.
In light of this general conservatism on the part of value investors, an article suggesting the use of mortgage debt to improve investment results may seem a bit odd. In most circumstances, my view is that investors should not only avoid leverage through margin accounts but should also attempt to be free of all forms of personal debt. Excessive debt obviously played a large part in the real estate meltdown and has ruined the finances of many families. Nevertheless, opportunities now exist for intelligent use of mortgage debt for certain individuals. Read this article for more information.