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I get an email every day from a financial website called the Daily Reckoning.  It’s mainly good stuff, once in a while they go a little off (as Aussies sometimes do) but it’s mainly good reading.

The email I received yesterday contained this:

“Buffett says inflation is exploding,” according to CNNMoney.

What can people do? A report in today’s news tells us that many are “delaying health care.” Probably a good move for the oldsters. If they put it off long enough, they won’t need it at all.

You could hang George W. Bush for inflation too. It would be fine with us. He let government spending get out of control. “Deficits don’t matter,” said his #2, Dick Cheney. More new federal spending and US financial commitments were added in the Bush years than under all the rest of America’s presidents put together; and more new money was created while George W. Bush was president than in all the years since the Declaration of Independence combined. Legally, we don’t know if that charge is enough to hang a man. Besides, it seems extreme. In the middle ages, if the keeper of the mint allowed monetary inflation, the king had him castrated. That seems like punishment enough.

Buffett says he is supporting Obama.

I like it!  Nice touches of sarcasm along with supporting data.  I don’t think I’m an Obama supporter, but I know that Bush has sucked - and he’s not likely to grow a pair before the election this fall.

There’s no real point to this post.  I just liked the email and wanted to share my thoughts on it. 

gk

I said most of this last week, but Paul Farrell probably says it better in this articleposted on MarketWatch tonight. 

I also talked about Warren Buffett a bit last week when he posted his annual letter to shareholders, but Mr. Farrell quotes both Buffett and PIMCO bond guru Bill Gross when he says “Buffett and Gross warn: $516 trillion bubble is a disaster waiting to happen“.

There are a lot of people saying that this is all overblown, that the Fed will handle it, that all we need is trust, etc.  But the more I learn about what’s going on, the more I’m convinced we’re in for a big crash.  Bigger than 2000, worse than Carter’s bungling in the late 70’s, worse than Johnson’s Great Society that wasted trillions of dollars.

Please read the article.  Earlier tonight I said that we’d be facing huge losses if just 10% of the mortgages defaulted.  According to this, I was way too optimistic.  Farrell says “There’s nothing intrinsically scary about derivatives, except when the bad 2% blow up.” Unfortunately, that “bad 2%” did blow up a few months afterwards, even as Bernanke and Paulson were assuring America that the subprime mess was “contained.”

Bottom line: Little things leverage a heck of a big wallop. It only takes a little spark from a “bad 2% deal” to ignite this $516 trillion weapon of mass destruction. Think of this entire unregulated derivatives market like an unsecured, unpredictable nuclear bomb in a Pakistan stockpile. It’s only a matter of time. “

AP is reporting that  “The Mortgage Bankers Association said Thursday the proportion of all mortgages that slipped into foreclosure set a record, 0.83 percent, from October through December. The previous high, 0.78 percent, came in the July-through-September period.”

We’re almost at 1%.  Watch what the foreclosure rate goes to over the next few months as all the ARM’s given out in 2005 start to reset.   Buffett’s view that “…derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”  will probably be proven right. 

gk

It’s never wise to bet against the Oracle of Omaha, Warren Buffett.  It looks like he’s using the substantial resources of Berkshire Hathaway to move into the bond insurance arena.  Bond insurer’s are the ones left holding the bag IF the entity which issued the bonds (business or government) defaults on the bonds they’ve sold and can’t pay the bond holders back.

I think it’s significant that Buffett is moving into this field with a fresh start - it would’ve been much easier to simply buy one of the companies that already issue bond insurance.  Since Buffett has in excess of $40 billion laying around returning money market rates, it would have been easy for him to buy a current player at sale prices.  Since he didn’t, what does that tell you about the current bond insurer’s?  Hint: The sub-prime fiasco has yet to bottom out.  Buffett knows this and decided to get in the business before the others went bankrupt.

Anyway, good article on it here:

http://www.businessweek.com/bwdaily/dnflash/content/dec2007/db20071228_263014.htm?chan=rss_topStories_ssi_5