Money and Metals

Warren Buffett made some comments about various markets today. "Warren Buffett and Berkshire Hathaway (Research) vice chairman Charles Munger threw Saturday's entire morning open to a question and answer session with shareholders just as they do every year. But their views on housing prices and the energy and commodity markets may ruffle some feathers."

"On a commodities bubble: Buffett: 'I don't think there's a bubble in agricultural commodities like wheat, corn and soybeans. But in metals and oil there's been a terrific [price] move. It's like most trends: At the beginning, it's driven by fundamentals, then speculation takes over. As the old saying goes, what the wise man does in the beginning, fools do in the end. With any asset class that has a big move, first the fundamentals attract speculation, then the speculation becomes dominant."

"Once a price history develops, and people hear that their neighbor made a lot of money on something, that impulse takes over, and we're seeing that in commodities and housing."

"Berkshire mostly avoids commodity speculation because Buffett said he's 'not good at the game of figuring out how far the speculative gains will go.' That means Berkshire won't make as much money as other investors who stay on until 'the final 30 days or weeks of a wild orgy,' he said, recalling a big investment Berkshire made in silver."

"Buffett said Berkshire didn't make any money on his silver investment because he 'bought it very early and sold it very early. Other than that, everything I did was perfect.'"

"On the real estate bubble: Buffett: 'What we see in our residential brokerage business [HomeServices of America, the nation's second-largest realtor] is a slowdown everyplace, most dramatically in the formerly hottest markets. [Buffett singled out Dade and Broward counties in Florida as an area that has experienced a rise in unsold inventory and a stagnation in price.]"

"The day traders of the Internet moved into trading condos, and that kind a speculation can produce a market that can move in a big way. You can get real discontinuities. We've had a real bubble to some degree. I would be surprised if there aren't some significant downward adjustments, especially in the higher end of the housing market."

"On mortgage financing: Munger: 'There is a lot of ridiculous credit being extended in the U.S. housing sector.' Buffett: 'Dumb lending always has its consequences. It's like a disease that doesn't manifest itself for a few weeks, like an epidemic that doesn't show up until it's too late to stop it Any developer will build anything he can borrow against."

"If you look at the 10Ks that are getting filed [by banks] and compare them just against last year's 10Ks, and look at their balances of 'interest accrued but not paid,' you'll see some very interesting statistics [implying that many homeowners are no longer able to service their current debt]."