Whitney Tilson in his email discusses Omaha parties; UBS report on BRK; Buffett on Booms, Bubbles, and Busts; Mend, Don’t End, Fannie and Freddie; Erin Callan Tells Her Side of Lehman’s Collapse; Billions; Samsung Galaxy S7 edge; Teenage Drivers? Be Very Afraid; Buffett’s NCAA tourney prize.
Whitney Tilson: Berkshire Hathaway 2016 annual meeting
1) If you’re going to be in Omaha for the Berkshire Hathaway annual meeting this year, I’d like to invite you to two events on Friday evening and Saturday afternoon, both in the St. Nicholas Room at the Omaha Hilton:
1) My friend Chuck Gillman and I are hosting our annual cocktail party from 8pm-midnight on Friday, April 29th. No agenda, no speeches, no dress code – just come, enjoy the drinks and snacks, and meet other value investors.
2) Chuck and I are also sponsoring a casual get-together immediately following the annual meeting on Saturday, April 30th – just walk across the street or take the skybridge to the Hilton. It will end around 6pm.
(I have to leave early to get back to NYC for a friend’s wedding, so I will only be at the Friday night event.)
To RSVP for either of these events, please email Jill at [email protected] and include:
- Which event(s) you plan to attend
- Your name as you wish it to appear on your nametag
- Your city as you wish it to appear on your nametag
I look forward to seeing you!
Whitney Tilson: UBS initiates Berkshire Hathaway with a Buy rating
2) Speaking of Berkshire, UBS just came out with an initiation on it with a Buy rating. Here’s the first page:
Whitney Tilson: A collection of some of Buffett’s wisest words
3) A good collection of some of Buffett’s wisest words, from his just-released 2010 testimony to the Financial Crisis Inquiry Committee:
One way to make sense of what happened is piecing together stories from those involved. The government tried this six years ago when it set up the Financial Crisis Inquiry Committee, interviewing dozens of bankers, regulators, top investors and politicians to try to figure out what happened.
One person the committee questioned was Warren Buffett. The interview took place in 2010, but the transcript wasn’t public until last week.
You can read the whole thing here. It’s 103 pages and totally fascinating.
I pulled out a few of my favorite parts. The quotes are lightly edited for clarity.
…On the nature of bubbles:
“My former boss, Ben Graham, made an observation, 50 or so years ago to me that it really stuck in my mind and now I’ve seen evidence of it. He said, “You can get in a whole lot more trouble in investing with a sound premise than with a false premise.”
If you have some premise that the moon is made of green cheese or something, it’s ridiculous on its face. If you come out with a premise that stocks have historically done better than bonds [and history shows that’s the case, people put their money behind it.]
…On debt and risk:
“It gets down to leverage overall. I mean, if you don’t have leverage, you don’t get in trouble. That’s the only way a smart person can go broke, basically. I’ve always said, “If you’re smart, you don’t need it; and if you’re dumb, you shouldn’t be using it.””
On the psychology of bull markets:
“When your neighbor has made a lot of money by buying Internet stocks, and your wife says, “You’re smarter than he is and he’s richer than you are, so why aren’t you doing it?” …
People don’t have to be trained to want to gamble in this country, but they have this instinct — a great many people — they’re encouraged when they see some successes around. That’s why the bells and whistles go off in the casino when somebody hits a jackpot, you know.”
On companies promising results:
“Any time a large financial institution starts promising regular earnings increases, you’re going to have trouble, you know? … If people are thinking that way, they are going to do things, maybe in accounting, that I would regard as unsound.”
Whitney Tilson: In-depth analysis of Fannie Mae & Freddie Mac
4) Bethany McLean with an in-depth analysis of the GSEs: why it’s been so hard to come up with a solution for them (both economically and, even harder, politically), and a spot-on conclusion (full disclosure: I’m long FNMA):
here we are in 2016, and—surprise!—the companies are still very much with us. The Dodd-Frank Wall Street Reform and Consumer Protection Act, which was supposed to reshape the financial sector and which President Obama signed into law in the summer of 2010, quite deliberately did not deal with Fannie and Freddie. Nothing has happened since then, either. The GSEs remain wards of the government. As the longtime housing analyst Laurie Goodman wrote in a 2014 paper, “The current state of the GSEs can best be summed up in a single word: limbo.” It turns out that solving the problem of Fannie and Freddie is the most difficult problem of the financial crisis.
…Nor have Fannie and Freddie shrunk. They still have some $5 trillion in securities outstanding. By one important measure, they are in more precarious shape than they were in the run-up to the crisis: thanks to a 2012 amendment to the terms governing their conservatorship, the government is taking almost every penny of profit that the two companies generate, so Fannie and Freddie have not been allowed to rebuild any capital, which could absorb losses in the event of another downturn in the housing market. “The two mortgage funders are effectively federal bureaucracies, stripped of their independence, with basically zero capital, but still dominating the market for mortgage financing,” wrote the conservative pundits Alex Pollock and James Glassman in a recent Politico piece. “We are faced with running this business with really no cushion. It is a challenging situation for us,” Fannie Mae CEO Timothy Mayopoulous said on a conference call in early 2015. “It’s the last unsolved issue of the financial crisis, and the ramifications are enormous for everyone,” says Ryan Israel, a partner at a hedge fund called Pershing Square.
Not only is the issue unresolved, signs of movement toward resolution are few. The omnibus spending bill President Obama signed in December contains a provision effectively preventing the administration from taking any action, and leaving it up to Congress. And the issue has barely been mentioned by any of the 2016 presidential candidates.
This broad silence reflects the genuinely thorny nature of the problem, but also the fact that virtually everyone in Washington supports “solutions” that are ideologically or politically convenient but don’t make sense as policy.
…There is, however, a fourth option: fix the flaws in Fannie and Freddie and let them operate, as they did—effectively—for more than half a century, as the main public-private guarantors of the thirty-year mortgage. This idea might sound sensible to most Americans. But in Washington it is considered, if not completely insane, then at the very least a political nonstarter. Yet it does have some backers, including certain reform-minded financial analysts, think tank scholars, civil rights groups, lobbyists for small banks, and, curiously, a few hedge fund billionaires who bought Fannie and Freddie stock low and stand to make a killing if the