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Ignore the Pundits! Six Gurus Weigh in on the Economy

To get a little perspective about the economy, it is always smart to get insight from some of the best gurus; there is so much noise in the media that it is hard to filter it out. While it is almost impossible (if at all possible) to predict the future, I have much more faith listening to gurus, who have predicted previous crises, and what they think about the current economic situation. Some are bullish; some are bearish. But it is always worthwhile to hear their opinions (I might be doing a part II on this).

Warren Buffett is undeniably one of the best investor of all time. Buffett’s recent message to thousands of Berkshire Hathaway shareholders remained a positive one. He believes the U.S is still a perfectly good place to live and work, regardless of the political and economic turmoil. In a recent interview with Reuters regarding the S&P’s move concerning the U.S government’s AAA credit rating, Buffett does not consider S&P’s step as a threatening one. According to Buffett, the US is not a credit risk and it is very unlikely for the government to default on any obligations. He believes S&P’s move was impulsive and the U.S. government can always print more money to cover the debt if absolutely necessary, as the debt is only in dollars.

When speaking of the global economy, one of the major concerns of today is Greece’s economy. According to Buffett, Europeans believe Greece to be too big to fail. Reflecting back, Fannie and Freddie were thought to be too big to fail; however, the institutions did fail in the end, causing what can be called the domino effect. Therefore, Buffett stated that Greece is "too big to fail without toppling others and getting a series of dominoes going."

Leon Cooperman, the founder of Omega Advisors, provided CNBC with facts regarding the U.S. economy which justify optimistic claims of Warren Buffett. According to Cooperman, U.S. banks which were declared to have been insolvent, currently have been able to raise over $100 billion in capital. Consumer savings which was initially 1% has gone up to around 5%. Additionally, the interest coverage by the public is the highest in many years. Other factors which further strengthen the case for being positive about the U.S. economy include the falling dollar price which would benefit exporters, the drop in oil price which would benefit corporations, and the financial stability of some of the largest corporations of the U.S. Leon Cooperman claims the pessimism regarding the current financial situation is mainly due to the fact that we are a "product of the recent environment."

However, not all major investors are as optimistic about the U.S. economy as Warren Buffett and Leon Cooperman.

Prem Watsa, who is also sometimes referred to as the Canadian Warren Buffett, is quite vocal about his worries regarding the U.S. and the global economy. According to Watsa, the U.S. economy’s downward spiral is due to the rising government debt, and is heading towards nothing but deflation. He says there is a lot of debt in the system, so there is nothing the policy makers can do anymore to prevent the economy from facing a long deflation period much like Japan in the 1930s. Not only is Watsa pessimistic about the U.S. and Europe's economy, he is much more concerned about the potential burst of the Chinese real estate bubble. With the world’s second-largest economy being threatened by high borrowing in the real estate market, along with the U.S. debt problem, he is predicting long-term suffering of the global economy.

Mario Gabelli termed the economic recovery of U.S. since the 2008 financial crisis as "a short-term hiccup." Gabelli, like Watsa, believes the chairman of U.S. Federal Reserve has run out of ammunition to fuel the economy. In addition to the insight regarding the current state of U.S. economy, Gabelli presented clear opinions regarding the future focus of the U.S. to FOX Business. Learning from the nuclear crisis that hit Japan, Gabelli believes it is highly essential for the U.S. to "become energy independent" and focus on energy policies in the coming years.

Robert Rodriguez is very bearish, but is hoping that policy makers will finally act due to the vast problems facing the U.S. economy. Here is a recent quote from a letter which he released:

When I left to take my sabbatical, I referred to my year off as the “interlude year” — the one between two crisis periods. Unless there was a radical and significant shift toward fiscal prudence, another crisis of equal or greater magnitude than the 2007/09 one was likely to take place within three to seven years and that it would emanate from the federal level. With the passage of the new healthcare law, I moved this time frame to within two to five years. The display of incompetence by the congress in the recent debt limit negotiations is not encouraging. However, the huge negative response it caused in both the financial markets and the electorate may finally force our representatives to face fiscal reality. In many cases, a rebirth begins when the alternative is totally unacceptable.

George Soros is very worried about the European economy and the effects it can/is having on the U.S. economy. Soros stated that Europe lacks the tools that the U.S. has to deal with the current crisis. Soros is worried about a possible bank run on European banks.

Here are some quotes from a recent CNBC interview:

"The European crisis is more serious than the crisis of 2008."

On Greece: "That may not be possible to avoid some form of reorganization (that) if it can be properly managed may be short of default." "It may be a voluntary reorganization. However, it is very important from the point of view of reassuring the markets that the possibility of default is prepared for, that in the rest of Europe arrangements are made to protect the banking system."

"Creating the common Treasury does not necessarily mean political union." "It certainly is a shotgun wedding, but it doesn't necessarily lead to a happy political union."

About the author:

Jacob Wolinsky
My investment ideas have been inspired by many of value investors including Benjamin Graham, Charles Royce, John Neff, Joel Greenblatt, Peter Lynch, Seth Klarman,Martin Whitman and Bruce Greenwald. .I live with my wife and daughter in Monsey, NY. I can be contacted jacobwolinsky(AT)gmail.com and my blog is www.valuewalk.com

Visit Jacob Wolinsky's Website


Rating: 4.3/5 (19 votes)

Comments

skal401
Skal401 premium member - 3 years ago


I'd love to hear Tepper's current view on the economy and markets !!
yswolinsky
Yswolinsky - 3 years ago
If any1 has his S/L and can get it to me Id be happy to send them a present.
manxman
Manxman - 3 years ago
Thanks for the writeup. Have you reviewed the various interviews and papers from Ray Dalio. They're worth looking at. His track record is better than all of these guys.

vgm
Vgm - 3 years ago
Thanks. One other who's always worth listening to in times of trouble is Wilbur Ross. I find him particularly lucid and practical.

He has spoken quite a bit publicly on the current climate, including an interview on TheStreet just yesterday entitled 'Crisis Investing. Q&A with Wilbur Ross.' Here's an excerpt...

"I think there's a lot of trouble in the economy, but the question is can you find things where that's priced in. If it's already priced in, that's fine, because our perspective is a couple year perspective."

http://finance.yahoo.com/news/Crisis-Investing-QA-With-tsmf-548377593.html?x=0
yswolinsky
Yswolinsky - 3 years ago
Thanks Man, I actually have a lot of letters from Dalio, but they are very lengthy didnt get through them yet.

Vgm- I agree, if I do a part II I will get Ross in there. He has had some pretty good calls about Ireland.

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