ERICOPOLY

The Macro Picture Today: New Home Sales Surge 25% in October. http://money.cnn.com/2013/12/04/news/economy/home-sales/index.html?iid=HP_LN Private Sector Hiring Strongest in A Year http://money.cnn.com/2013/12/04/news/economy/adp-jobs-report/index.html?iid=HP_LN US Exports Climb to Record High: http://online.wsj.com/news/articles/SB10001424052702303997604579237761389959526?KEYWORDS=Trade+gap

His comments begin at the 17:35 mark and ends around 18:40

One of Buffett's better quotes was when he pointed out that his gift of $50billion means nothing to him because he suffers no loss of utility. Instead, it's a bigger deal when a person gives away money that causes some sort of sacrifice -- like if you worked for a living, haven't yet saved enough for retirement, and gave away $100. That $100 still has utility to you, as you need to keep on working to replace it. But Buffett's $50b gift is pretty meaningless to him -- it changes nothing in his life. At least that's how he phrases it -- it might just be false modesty, hard to say. He makes this point in the recent talk he did with Brian Moynihan at Georgetown.

Sorry, my mistake. You seemed to write 10 about messages about how Buffett hated artists, using phrases such as "Buffett's theory of artists being a waste of capital". So, I thought you were confused about what Buffett was actually saying and were seriously suggesting that Buffett hates artists. Because of the preponderance of dialog about the artists/capital allocation, I didn't realized that your caveat was your key point. Sorry for the misunderstanding. I didn't bring up the topic, Richard. Read back and see. Somebody raised the point that Buffett would not hire 10,000 artists because it would lead to people not working on cancer research. I argued against that point, saying how it wouldn't happen (with a variety of colorful illustrations). I don't even know if Buffett ever said it at all (the point still stands at face value no matter whether true quotation, misquotation, or mythology) -- it's irrelevant if Buffett really said it at all, or if it was misattributed to Buffett. Then to the rescue of Buffett, you leap into it and stick your foot in your mouth. And here we are ;)

I think tipping should be banned in favour of higher wages for people in the "tipping" industries. No tip restaurants have a record of better service... look it up. I am not talking about low end places. I wonder if a psychologist could study the brain waves of big tippers -- perhaps tipping makes them feel superior/powerful (over the servant) and they derive extra reward from it -- being "the boss" for a moment at the end of the meal. I wonder if it leads to greater pleasure (for some people) and thus brings more enjoyment to the dining out experience. Personally, I find tipping awkward but I have to take part in it because that's the way the system is set up in this country.

Life expectancy would improve by 3 years. The real problem isn't cancer -- it's that our cells divide 20 times and then die (I think it's 20, could be wrong on the number). EDIT: quick google search suggests 52 times

This is a gross misinterpretation of what he meant. He meant that because he controls great amounts of wealth, he's capable of allocating resources in ways that are stupid and not beneficial to society. He could have said "Dig holes, then fill them in", as Orwell said in 1984, and it would have had the same meaning. He was not saying anything about the merit of art to society. It's typically a mistake to assume that Buffett is saying something idiotic, when a reasonable alternative explanation exists. (i.e. I agree that if he meant to imply that artists should become surgeons, it would be idiotic. But he didn't meant that.) The part of my message you deleted was: that is, if he really believes that It's typically a mistake to edit the caveat out of another's post and then advise them about reasonable alternatives. How ironic, in a sense, that is.

Just to be clear, I wasn't inferring you. I was picking on Buffett's theory of artists being a waste of capital, or misallocation of resources. (that is, if he really believes that -- I know he enjoys a Nebraska football game, and boy is that ever a good allocation of resources with the stadium and all that could instead be a research facility. And those football players should be in lab coats.)

There is a word for the strict capital allocation argument :) Philistine: a person who is unreceptive to or hostile towards culture, the arts, etc; a smug boorish person http://dictionary.reference.com/browse/philistine?s=t

You never disappoint. I think you're right, but I'm not certain. Indulge me. Let's say there's a situation where nobody is changing jobs. Let's say that the most beneficial advancement we can make as a society is to cure cancer. Would you agree that committing money towards cancer research helps further the goal of curing cancer? Would you agree that committing money instead towards art projects will not help further the goal of curing cancer? If so, is it true then that society is better off when the money goes towards cancer research instead of art projects? Would you settle for Art Therapy for Cancer? http://www.ehow.com/about_5409457_art-therapy-cancer.html

Actually, if you burn the 50 bil it will make the remaining capital more valuable. Thus, no destruction of value. Well perhaps we decide the "Buffett Tax" is a misallocation of millionaire wealth because the millionaires get rich slower due to this tax, thereby reducing the amount they can later give to benefit the poor. Instead, we encourage all of the millionaires to shelter their passive dividend income within insurance companies at the 14.5% rate and defer all their capital gains. Then the millionaires have more to give to the Gates Foundation. And let Bufffett's secretary pick up the tax bill due here in the US. Oh wait... did I just point out that Buffett has contributed to his secretary's tax dilemma? Oops. It would be interesting to figure out how much his Berkshire stake would be worth if he paid income tax every year on 3% of it (simulating a 3% dividend payout). Maybe a lot of us are (somewhat) generous like him and don't realize it because our generosity goes to the US Treasury instead.

Actually, if you burn the 50 bil it will make the remaining capital more valuable. Thus, no destruction of value.

I agree that Buffett's work as a capital allocator hasn't much benefited the wider world. Straw-man arguments are funny, but don't help me change my mind. I'm not arguing that if a group of laborers is given a pay-cut they'll suddenly become cancer-researchers. I'm just saying that incentives determine behavior. Laborers go where the money goes. If a profession offers very high pay, over time more people will enter/ stay in the profession. If a profession offers terrible pay, over time fewer people will enter/ stay in the profession. Of course we do. And of course people choosing to teach guitar is not a problem. Incentives determine behavior. Yes. That's why artists are not working on Wall Street. They are incentivized by what they love doing, and it obviously isn't about making money, it's about making art. Do the people going to art school do it because they think they'll be rich? Uh, of course not. So Buffett's argument is nonsense.

Isn't that what Buffett himself did? He became a useless allocator of capital, getting paid more than $10m a year. How many cures has he found? Would we have a cure for cancer if Buffett made less money? What if lawyers were paid less. Would they be curing cancer? Perhaps they'd slap spreading cancers with a trespass suit? We haven't yet used their outside the box thinking to approach the cure, I'm sure that's what the problem is. Damn it. Or how about hotel operators. Is Trump a would-be scientist, dorky hair and all? Kill the skin cancers by blocking out the sun with an analogue to the Trump Towers. Is Moynihan a scientist? What's Angelo Mozillo doing on a Montecito beach when he should be in a lab coat? Perhaps if we didn't properly document the cancers and sold them with reps and warranties to an unsuspecting alien species, we could rid the human race of them. If only the CEO didn't get paid as much, he would be the budding scientist we desperately need. Maybe... we already have a lot of bright scientists working on the cancer problem already, and the true problem isn't that a groovy looking UCSB dude is teaching guitar to my daughter on Sunday afternoons (he is) instead of joining the fray. Just maybe.

We all date back to the same origins in Africa a very long time ago -- so we have all been around for as long as those monks. Well, I've only been around for 40 years, so plenty are wiser based on how long they've been around. I had a grandmother that lived to 93, and she was very wise. Perhaps some of the monks have an edge on her if they are pushing past 93. But are they more worldly? Well, my grandmother was raised in Finland, married in England, emigrated to Australia, and travelled extensively. How many cultures and varied peoples do the monks expose themselves to?

I believe that artists should be artists. They enrich our lives.

Now if he said that, I think it's a silly comment. He knows that artists are artists, and scientists are scientists. For what it's worth, here's what LC was quoting: http://youtu.be/VdYxVx3PHxk?t=2m39s Artists are artists until it doesn't pay to be an artist. Generally speaking, laborers follow the money. Trust me on this one and ignore Buffett's jibber jabber -- we are not going to lose our talented scientists to art school. Can Bill Gates sketch my child for a trillion dollars? Highly unlikely! More likely to spin straw into gold. But yes, a scientist can run a hedge fund. He cannot, however, be an artist unless he has the talent.

Now if he said that, I think it's a silly comment. He knows that artists are artists, and scientists are scientists.

You can also enjoy your money in another way while helping others. You can employ a housekeeper, a person to rub your wife's feet, a cook and wranglers for a pack horse trip, a guide to take your family whitewater rafting, dog groomer, car detailing, private tennis lessons, private surf lessons, fully crewed charter vacation, commission an artist to sketch your children, five star dining... etc... etc... Even if you "waste" your money in such a manner, you are doing good. People take home a paycheck. You are redistributing your wealth to working people.

Okay, got it :)

Here, instead, we are talking about earnings, sales, prices, and subsequent stock market returns… much easier imo! How is it easier when Hussmann says that the earnings will stay high until the deficits are corrected? In what, 20 years? Next year are they balancing the budget? I suppose he doesn't run the risk of being easily proved wrong here. Although with the deficit contracting over the past two years, and with the earnings going higher, he might yet be showing early signs of being wrong? There has been a false dilemma propagated here by you "either the data is wrong or 'this time is different'". You might still be right, but it's a false dilemma.

Were the self controlled ones the people who were buying well capitalized banks at 1/4 book value, tripling their money in two years, or were they the academics hiding scared under their thoroughly backtested charts? It's not always clear who the one with self control is ;) Hussmann is not too modest either -- his paper starts out telling us how he's a credentialed academic, then on to saying how he's got not a bad track record investing either. Was he telling us that he's an authority so we should cast our doubts aside?

This I don’t understand… If you know better valuation models, I mean models that from 1948 until 2003 have a track record of predicting stock market returns better than the ones on page 8 and 9, very well then I would like to see them… But I don’t understand how they could lead to different conclusions… Once again, either the data are flawed, or this time is different. Gio Okay, how about somebody makes a model that shows that every time the employment level has been this lousy, it has been followed by an economic recovery? Or how economic recoveries have always followed periods when housing construction has been this poor? Or market returns following forward P/E multiples of 15x. There are many things that could be presented, but Hussman is only putting in ones that support his conclusions. There are many value screens that work great when backtesting against data, as Hussmann is doing -- but they aren't necessarily predictive. How did the ECRI guys get it so wrong these past two years?

Well, first of all I hope he invested in WFC, while shorting the general market… That is much different than sitting in cash! The real problem with Mr. Hussman maybe is that he is not a very good stock picker! But that is a completely different story… Anyway, I am not interested in how good Mr. Hussman is as an investor… Who cares?! Instead, I wanted to understand if 51 people think the historical data he shows are flawed, or if 51 people think “this time is different”. Gio So if the data he shows is not flawed then necessarily "this time is different"? Right, you see there is a problem with that. How about if the data he shows is not flawed, but rather he is just putting up accurate data that doesn't actually support his conclusions? Take a look at twacowfa's comment about the profit margins in the domestic non-financial sector.

Eric, of course the charts I am trying to disprove have some relevance with the discussion on this thread!! Leave profit margins alone for a second, and just look at the chart on page 8 (Price / Revenue) and the one on page 9 (Market Cap / GDP). I am only interested in the past… no prediction about the future! My question is: are the data on those charts accurate? And, if not, can anyone show me better data, please? Gio The point about the hemlines is to show enough contrast that it would clearly be ridiculous and thus discarded, even if it showed a correllation. The trouble with what Hussman is presenting is that nobody can discard it out of hand because it is presented as the evidence that will settle all doubt, and unfortunately it is economic data (so you can't just laugh it off). Instead, you need to present a serious argument as to why "this time is different", as it will be perceived. So he sits within his impenetrable castle walls... Wells Fargo was about $22 two years ago, where was Hussmann?. It is frigging IDIOTIC to sit in cash when so many bargains have been available. He has been a fool.