On Bernanke and Buffet

By: Ian Campbell | Fri, Aug 26, 2011
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Bernanke From Jackson Hole!

This morning at 10:00 a.m. ET, Federal Reserve Chairman made his 'much anticipated speech' from Jackson Hole, Wyoming. You can read his speech ('The Near- and Longer-Term Prospects for the U.S. Economy' - reading time 10 minutes) and think about what he said. In my view, if you participate in the financial markets that will be 10 minutes very well spent. Reading and thinking about today's speech is a far better thing to do in these 'rude economic and financial market times' than reading my comments, or comments of other writers and 'experts' - not all of which may be written by persons who are unbiased and write from non-vested interest positions - that summarize and draw conclusions and inferences from it.

That said, having read Mr. Bernanke's speech carefully, my comments are:

Let me begin by saying that I am sure Mr. Bernanke has a high intellect, that I am certain he has a knowledgeable and experienced grasp of Washington and its politics, and that he is far from as naïve as the following three 'motherhood' statements he made in his speech would- but for my qualifiers as to his intellect and 'Washington smarts' - imply for me. He made these three 'Bernanke statements' after saying "most of the economic policies that support robust economic growth in the long run are outside the province of the central bank". Those three statements are:

In his speech he stated his belief that (my words): 'America is America' and in the end everything will recover nicely and life in America will go on and progress as it always has to the ongoing benefit of the American people.

I strongly suggest you read Mr. Bernanke's speech for yourself, and reach you own conclusions.

At 11:15 a.m. ET today the price of physical gold had recovered to U.S.$1,780, and the Dow and S&P 500 were down 23 and 5 points respectively. I say 'go figure', it seems to me that so far even the trading algorithms haven't figured it out - but they are programmed to read markets, not speeches (smile).

Warren Buffett - Standing In A Good Place!

Yesterday it was announced that Warren Buffet's Berkshire Hathaway Inc. bought a U.S.$5 billion 'Preferred Share and Warrant Package' from Bank of America's treasury. The terms of those Preferred Shares are set out in 'Buffett's BoA stakes net $1.4B on first day' - reading time 3 minutes. Those terms are reported as Berkshire having purchased:

My comments on this are as follows:

Also from 20,000 feet I wonder this morning whether the fact that Berkshire was able to complete this transaction on terms that have been announced and the terms I am guessing at speaks to a possible view by Mr. Buffett and Berkshire on the current state of the U.S. economy and U.S. banking industry generally. To insist on a 10 year warrant term over a 5 year warrant term may be an indicator that Mr. Buffett and Berkshire now see a longer term time horizon for meaningful U.S. economic recovery to take hold than they did in 2008, when Berkshire was prepared to accept warrants with a 5 year term in the Goldman deal.

I say 'good for Warren Buffett and Berkshire' in entering into a transaction that I suspect is virtually risk-free to Berkshire shareholders. As an aside, to the best of my knowledge 'Warren' did not invent the concept of 'warrants' as a 'financial kicker' in financing deals (smile).



Ian Campbell

Author: Ian Campbell

Ian R. Campbell, FCA, FCBV
Business Transition Simplified

Through his www.BusinessTransitionSimplified.com website and his Business Transition & Valuation Review newsletter Ian R. Campbell shares his perspectives on business transition, business valuation and world economic and financial markets influences on those two topics. A recognized business valuation and transition authority, he founded Toronto based Campbell Valuation Partners Limited (1976). He currently is working to bring his business valuation and transition experience to both business owners and their advisors in our new economic, business and financial markets normal.

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