|»5 Minute Wrap Up by Equitymaster|
On This Day - 21 JANUARY 2010
Has Warren Buffett got it completely wrong?
In this issue:
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This is what Buffett said of Bernanke, "He did a magnificent job over this period, when I look back at September, October 2008, he took action. Maybe he extended his authority, but he did what he should have done in response to the economic Pearl Harbor."
We disagree. We believe all that the US Fed has done is just paper over the problems. It has tried to solve a problem of excessive money supply and leverage with still more money supply. Currently, injecting more money is looking like a great step what with asset prices enjoying a great deal of recovery. But we believe that we have set ourselves up for an even bigger blow up in the future.
So, what explains Buffett's fascination with Bernanke? Maybe self-interest? His net worth is so inextricably linked to the fortunes of the US economy that he is forced to take Bernanke's side. Alternatively, it could also be due to his affinity for an entirely different school of economics. Whatever be the reason, for once, we tend to disagree with Warren Buffett.Do you think Buffett is right in his assessment of Ben Bernanke? Please share your views with us.
We would however refrain from giving such exact numbers. But even we would want to side with the majority of the fund managers in the survey. Our research is not throwing up as many fundamentally good stories available at attractive valuations as it used to do say about a year back.
In normal times, such a growth will bring cheer for any country's policymakers. But if times are bad and if such a growth is built upon nothing but cheap money, it's a fearful feeling. Such strong growth in fact must add to the pressure on Chinese central bankers to rein in surging credit. Otherwise, it threatens to destabilize the world's fastest-growing major economy. And with it the entire global economy.
It may be noted that the international giants have much higher R&D expenses as a percentage of sales than their Indian counterparts. As a result, barring Tata Motors' Nano, few Indian models have managed to grab headlines. However, Maruti Suzuki will soon launch its first fully India configured small car. In our view, advertising and R&D are examples of the expenses that actually aren't. Actually, they are more like assets. In fact in many cases, they hold the key to the competitive advantage of companies. Even nations. Hence, it is not surprising that India's and China's total R&D spending as a percentage of GDP is at 0.8% and 1%. Compare that to 2.7% and 3.3% for the US and Japan and that too on a higher GDP base of these two countries.
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