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moneysense.ca, 8/10/08
Warren Buffett Interview
In the comments to an earlier post, Patch posted a link to Charlie Rose’s interview with Warren Buffett. In it, Mr. Buffett compares the credit crunch to an “economic Pearl Harbour” and recommends immediate action, instead of apportioning blame for who is responsible for the current mess. He is fond of saying that he likes to be greedy when others are fearful and wants to be fearful when others are greedy and he couldn’t remember a time when people are as fearful as today. Still, he points out that even with a bailout, the US economy is facing a recession, perhaps a deep one and the credit crisis will, even in a best-case scenario, take months to resolve.
moneysense.ca, 8/10/08
The friend of mine mentioned the other day that the Royal Bank raised his line of credit limit by 20% – completely out of the blue, as my friend did not apply for any additional credit. Just wondering, what it might mean in the larger scheme of things..Credit crunch not as bad in reality as the media would have us believe, perhaps?
See the animated video Money as Debt by Paul Grignon ( video.google.com/videoplay?docid=-9050474362583451279)
If you have never seen this video, it is an eye-opener and well worth it (though a little “out there” on the conspiratorial side). It is 46 minutes though, so make sure your boss isn’t around
It was a great interview and I try to watch them as often as I can. When WEB is candid as he so often is he provides great insights into how to just look at the market in an objective way. There’s no icing on the cake, but he gives you the straight answer that often is lacking from many portfolio managers interviewed in the media hoping to sell their product. His reputation sells itself and I respect the man immensely for that.
CC, here’s something else well worth checking out. NPR’s This American Life has a fantastic episode this week about the credit crisis, how derivative swaps work, and thoughts on the bailout. You can still download this broadcast for free.
The episode is a follow-up done by the same guys who did their now famous episode “Giant Pool of Money” which explains the credit crunch better than anything i’ve ever seen or heard. The transcript can be downloaded or you can pay 99 cents to download the audio.
Either way, both episodes are incredibly informative and entertaining.
Rita: TD Bank is already charging prime + 1% on new variable rate mortgages and secured lines of credit. Other banks have cut (or eliminated entirely) the discount offered on variable rate mortgages. So, it’s not simply a scare tactic. There really is a credit crunch going on.
Dave, Tyler: Thanks. I’ll check these out.
Brad: Buffett is funny to boot. Sample: “With my brains and your money [Charlie Rose's] I don’t know how far we’ll go!”.
To add on my last comment, the guys who did the This Life piece have an NPR podcast called Planet Money that is also simply phenomenal.. The latest episode does an amazing job of explaining how interest rates and rate spreads correlate “fear” in the market.
I think that the way to deal with the current crisis is identify a pool of quality dividend names, set entry prices below current ones and then dollar cost average all the way down. Could you lose money? You bet you will in the first months. But in the long term you should do fine..
The main problem? Your kids won’t realize the value of the dollar in 2 decades and will be spoiled from your profits..
I can’t get over the response from the banks today regarding the rate cut. All of them decided to only cut .25 instead of the full .50 the BoC gave. The part the ticks me the most is that the banks have had some crazy profits over the past 5 years. I not buying the fact it’s costing more money for them to loan money when they have already over changed everyone on services etc… How much money do most of the banks have in cash at the end of the day after all the profits they’ve made? What part of “trying to stimulate” the economy do the banks don’t understand? They’re making money on the back of their customers by not adjusting the rates in the same manner the rates have been adjusted for them. Once again our great Canadian banks screws over the Canadian public so they can pocket whatever money they make of the .25 they didn’t pass down the customers.
CC, I think your response to Rita’s question exposes a sign of our times. The Bank of Canada today cut short term interest rates by 0.5% but the major banks are INCREASING interest rates on variable mortgages. Will this type of behaviour hurt the effectiveness of the Bank of Canada (and other central banks) in directing the economy and curbing inflation?
A point from the video that I think is important (Buffett mentions it on several occasions) is that the fed must pay market rates for the securitized debt. Hopefully, it will encourage other financial institutions to tentatively dip their toes back into the credit pool.
When Warren Buffett talks everyone should listen.
Kewri: I wrote about this in today’s post. Unfortunately the banks will behave as any business will — they’ll pass on the extra costs to consumers.
Cash Canuck: There are suggestions that in a more normal situation, the banks will match BoC moves (at least, they’ll definitely match upwards move!).