Published in Investing on 22 January 2010
As Berkshire Hathaway shareholders vote to approve a fifty-for-one split in its class-B shares, has been sharing his thoughts with both CNBC and Fox Business.
Cadbury and Kraft
Obviously this is the big story for British investors, and Berkshire Hathaway owns 9.4% of the predator. In a nutshell (pun intended), Buffett doesn’t like it, and thinks the Brits are getting the better side of the deal. Tony Luckett’s article goes into more detail on the chocolate wars.
Having questioned the judgement of Kraft’s chief executive, Irene Rosenfeld, describing her as a “perfectly decent person” could be considered damning with faint praise — running a giant corporation requires much more than just decency. Kraft recently sold a pizza operation for nine times earnings, and is now buying Cadbury (LSE: CBRY) at 16 to 17 times earnings; as Buffett put it: “It’s hard to get rich doing that“.
Banks
Buffett has always had a significant interest in banking and financial companies, and increased his holdings during the crisis, but unsurprisingly he is highly critical of some of the management of banks in general.
Ideally he would like to require CEO’s, and their spouses, to sign up to an agreement whereby they are wiped out financially if their bank has to resort to assistance from the state while they are at the helm, or within two years of leaving office. Directors would be fined five times their average annual compensation. Something like that might indeed help to focus minds.
On the other hand, he is totally opposed to the proposed levy on financial firms, describing it as a ‘guilt tax’, a view not shared by Motley Fool’s Bruce Jackson.
Government
While he is opposed to a banking levy, he heaps praise on both the current and previous administrations for their handling of the credit crisis, which was an ‘economic Pearl Harbour’.
“The key actions of the government were in September and October 2008 … they had to show that they were going to jump in and do whatever it took.“
He reiterates that an independent Fed is “incredibly important”, and says that Fed Chairman, Ben Bernanke, “did a magnificent job“. In the unlikely event that Bernanke is not reconfirmed for another four-year term, he’d expect to see sharp falls in the market.
The Recovery
Berkshire Hathaway has shed 25,000 of its 240,000 employees, and 6,500 of those were in its carpet business. While Buffett has a famously hands-off approach to management, it was interesting to hear him say that he looks at the incoming orders in the carpet business on a daily basis. Perhaps he views it as a useful early indicator of consumer spending?
Buffett was very bullish on the long-term health of the economy, as evidenced by his purchase of rail company Burlington Northern, but is is careful to point out that “deleveraging is a painful process and it takes a long time“.
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