A Buffet of Buffett, Munger and Market Madness

May 3, 2022

A Buffet of Buffett, Munger and Market Madness
These are strange times, so strange, in fact, that I can’t even follow my own advice, to read the tape, because I can’t get my head around what’s happening now. In more than 30 years of trading, I’ve never experienced markets quite as bonkers as these. 
Let’s take a look.
Housing: Not a lot of icing on this cake
The song remains essentially the same for housing this week: too much demand, too little supply, too many deep-pocketed competitors including corporate investors, and too little chance of buyers of modest means getting a foothold.
As I’d pointed out over the course of several past posts and the New York Times reported this week, there’s been phenomenal wealth accumulated because of increases in housing values but, in my opinion, it’s also tenuous and potentially socially disruptive because of the increasing disparities (note, the emphasis on “trillion” is mine, not NYT):
“Over the past two years, Americans who own their homes have gained more than $6 trillion in housing wealth. To be clear, that doesn’t mean homebuilders have transferred to buyers $6 trillion worth of new housing, or that existing homeowners have made $6 trillion in kitchen and bathroom upgrades.”
Federal Reserve, reported via New York Times
Housing is historically a great way to create generational wealth, but only if you can get into the market. 
Interest rates are rising but, because of lag times, we won’t see their true impact on housing for another six weeks or so, and high home prices and competition persist. And this week, the National Association of Realtors® released a study indicating that home affordability has dropped to its lowest point since 2008 – in fact, according to NAR data, home prices experienced double-digit increases in the first quarter of 2022 for 70% of major metros.
Honestly, that’s worse than I could’ve imagined. 
Increasingly, too, as NAR data shows, buyers are looking to move significant distances – this isn’t just going from your urban core to its suburbs, these are cross-country moves in many cases.
National Association of Realtors®
When the markets are behaving more typically, then the 90-day correlations between the stocks and housing are clear. Now, though, it’ll be interesting to see if the correlations hold up – the markets started dropping about six weeks ago, so let’s revisit this point in mid-June to see how it goes. It’s tough to call. 
The other hope for putting the brakes on housing’s fire is that the Fed’s rate hikes will eventually have an impact. Last week, I thought we’d see the markets self-correct, but now I’m less certain that’s where we’re headed because I simply am having a really hard time reading the tape. 
The markets: Finding value in a pile of nonsense

Earnings reports, inflation and geopolitical unrest over the last several weeks have left the markets reeling – this week’s increase of half a percentage point was in line with market expectations and was already baked in. (Last week, I mentioned that I’d have just gone all in with a 100-point rise. It may have been more interesting if he surprised us all with a 25-point increase instead: I guess Powell threw us a bone by saying that he won’t raise it by 75 basis points in the future, which of course rallied the market.)
As reported in Seeking Alpha today:
“Federal Reserve policymakers have clearly telegraphed what they plan to do at today’s FOMC meeting before the latest blackout period began on April 23. Officials are set to hike rates by 50 basis points for the first time in 22 years, after lifting the benchmark rate by a traditional 25 bps (to a range of 0.25%-0.50%) during the FOMC’s last gathering in March. Chair Jerome Powell is also poised to announce plans for “quantitative tightening,” or allowing the central bank’s $9T balance sheet to run off at a pace of $95B per month, though outright sales of securities won’t be ruled out for the future.”
Whatever the case, there’s always a silver lining: This week, we had the Warren Buffett/Charlie Munger show, thanks to Berkshire Hathaway’s annual meeting, and all I can say is, thank you, thank you, kind sirs, for some of the best zingers of the last several months. 
Chief among those was Buffett’s comparisons of today’s markets to “gambling parlors.” 
You don’t need to be the Oracle of Omaha to realize how gamified the markets have become – I’ve called that for months now – but it’s nice when your observations are backed by two of the most successful investors of all time. 
On that note, Charlie followed up with:
“‘I don’t think we ever had anything quite as we have now in terms of the volumes of pure gambling activity going on daily,’ Mr. Munger said. ‘It’s not pretty.’
But the amount of speculation in the markets has given Berkshire a chance to spot undervalued businesses, Mr. Munger said, allowing the company to put its $106 billion cash reserve to work.
‘I think we’ve made more because of the crazy gambling,’ Mr. Munger said.”
Their annual meeting report is also a testament to the long-term value of value investing, of doing your research and not getting caught up in trends and politics. 
They’ve been following their own advice for decades and while imperfect in many ways, there’s absolutely no denying their formula for success – or the enjoyment that they still get from their work, which they still do well into their ninth decade.
Which brings me to another point – understanding our ‘whys’ – why we do the work we do, why we have certain financial or professional or personal goals. I love my work, for example, and that passion for real estate, for trading, for helping others and seeing them succeed, makes it fun to get out of bed every day no matter how hard the day’s going to be or how bonkers and unpredictable the markets are.
And I understand the people who say they want to achieve financial freedom by 40 or 50, but I’ve never understood the people who say they want to retire then. And as I watch Warren and Charlie, at 91 and 98 years old, respectively, I hope that I have the wit and stamina to keep going and, importantly, to feel relevant, just as they do.
All this attention on the Berkshire Hathaway team even served to distract me for a bit from Elon Musk. And that got me wondering – what exactly does the dynamic duo think of Musk?
Looking back, I found this fascinating piece in Business Insider from February 2022:
“Elon Musk said billionaire investor Charlie Munger once told people at a lunch ‘all the ways Tesla would fail.’
The Tesla CEO was responding to a retweet about Munger’s comments on Wednesday in which he likened the cryptocurrency to ‘venereal disease.’ The 98-year [old] is the vice chairman of Berkshire Hathaway and Warren Buffett’s right-hand man.
In response, Musk — a crypto supporter — tweeted an anecdote. 
‘I was at a lunch with Munger in 2009 where he told the whole table all the ways Tesla would fail,’ he said.
‘Made me quite sad, but I told him I agreed with all those reasons & that we would probably die, but it was worth trying anyway.’
Tesla is currently the world’s most valuable carmaker with a market capitalization of $954.3 billion.
Munger had commented about Musk in public before, saying in December that the Tesla and SpaceX CEO ‘thinks he’s even more able than he is and that’s helped him.’
‘Never underestimate the man who overestimates himself. Some of the extreme successes are going to come from people who try very extreme things because they’re overconfident,’ he continued. ‘And when they succeed, well, there you get Elon Musk.’”
So, there you have it – but does that portend that Munger could be wrong about crypto, too? Possibly, time will tell. But for now, I’m still firmly in the dynamic duo’s camp.
Find what’s worthwhile
So, in the midst of all this tumult, what’s the takeaway? Maybe this: Sometimes, life’s like a steakhouse buffet – even when it looks like little more than heaps of mediocre offerings, with patience and care, you may still find something special. 
Like Warren, Charlie and Elon, do what you can to live your best life this week, friends, in whatever ways resonate for you and stay relevant.
See you next week.

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