FCIC Interview of Warren Buffett May 26, 2010

[eclecticvalue]

I found this interview which discusses primarily about bubbles.

 

Transcript-http://ritholtz.com/2016/03/fcic-buffett/

 

 

Audio-http://ritholtz.com/2016/03/fcic-staff-audiotape-of-interview-with-warren-buffett/

[Libs]

Thanks for posting.

 

Can someone explain what Buffett is getting at here? He's equating margin investing with buying, say, SPY calls?

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And then we came along in 1982, and we, in a sense, opened up leverage to anybody in extreme measures and since that time –- it’s 28 years since then. I and perhaps others –- but I know I pointed out at least  20 times the really nonsense of saying — and still having the Federal Reserve telling people they can only borrow 50 percent against stock or whatever the margin requirements have been at various times, and then at the same time, telling them you can go gamble in S&P futures or something the 2 percent or 3 percent margin or whatever it might be. And to this day -– and I’ve talked to Congress about it. To this day, we sit there, with a system, where the Federal Reserve is telling you how much you can borrow against stocks and we’ve got this parallel system where people can gamble anything they want virtually, in terms of the most obvious one being the S&P futures. And I have seen no attempt by anybody to address that total contradiction.

[jay21]

Buying futures. See portfolio insurance, which was the rage during that time: https://en.wikipedia.org/wiki/Portfolio_insurance

[thefatbaboon]

Thanks for posting.

 

Can someone explain what Buffett is getting at here? He's equating margin investing with buying, say, SPY calls?

-------------------------------------------------------------------------------

 

And then we came along in 1982, and we, in a sense, opened up leverage to anybody in extreme measures and since that time –- it’s 28 years since then. I and perhaps others –- but I know I pointed out at least  20 times the really nonsense of saying — and still having the Federal Reserve telling people they can only borrow 50 percent against stock or whatever the margin requirements have been at various times, and then at the same time, telling them you can go gamble in S&P futures or something the 2 percent or 3 percent margin or whatever it might be. And to this day -– and I’ve talked to Congress about it. To this day, we sit there, with a system, where the Federal Reserve is telling you how much you can borrow against stocks and we’ve got this parallel system where people can gamble anything they want virtually, in terms of the most obvious one being the S&P futures. And I have seen no attempt by anybody to address that total contradiction.

 

He talking about futures not options.

[Jurgis]

He talking about futures not options.

 

That's correct. But you can also lever using options, so same argument applies, no?