Buffett's Bailout: Let's Call it 'Trickle-Up' Economics
The US public and our representatives in Washington on both sides of the aisle are not buying it. They want the clean baby but not the bathwater. The US dollar is weakening on the prospect of an upcoming need for $1 trillion of fresh US debt and gold and oil are up in a flight to quality mixed with the effect of a weakening dollar.
The bailout will pass before next week in an altered form and the markets will rally on the news. The world will buy our debt and the dollar will stabilize. The commodities, which are rising on anxiety, will reverse course on much slower global growth. Indeed, we have begun hearing the D word again; deflation.
Probably the most critical news is Mr. Buffett's investment in GS. We applaud the man. He is leading the way in private equity bailing out the banks as opposed to socialization.
The question for us is, should we follow his lead and begin buying?
We are willing to hold off for now in order to tilt the probabilities in our favor. While we may miss an initial surge, we can still participate on the follow-through rally. Mr. Buffett secured a perpetual preferred in Goldman that yields 10% and is backed by a government put. If we were to buy GS here at approximately $130 per share, we do not receive any guaranteed yield. Did we forget to mention the GS warrants entitling Berkshire Hathaway (BRK.A) (BRK.B) to buy billions of GS in the future at a share price of $115?
Again, we applaud Mr. Buffett's bailout. Politically, we understand Washington's reluctance to capitulate to the administrations demands but, the clock is ticking and the machine needs more grease.
We will commit our capital once we see follow through in an upcoming rally