Often, during confusing economic times, people turn to icons in the investment world such as Warren Buffet and bond king Bill Gross for direction and blindly absorb the opinions of such men as their own without any critical analysis. To allow a handful of prominent men to guide the direction of public debate regarding our global financial and monetary crisis is an extremely dangerous and counterproductive habit, for a great many of these men possess ulterior motives that drive the vast majority of their public actions and statements. Consider if you owned hundreds of millions of shares of a single stock (Warren Buffet reportedly owns more than 300 million shares of Wells Fargo stock). Would you not be inclined to make statements that supported a rosy an outlook as possible for Wells Fargo if you were aware that your public statements held enough weight to move the stock higher?
When Bill Gross lobbied the US Treasury to bailout Fannie Mae and Freddie Mac, and publicly stated that letting these institutions collapse would be disastrous for all Americans, do you really think that he had the interests of his fellow Americans in mind? At the time of Mr. Gross's very public pleas, 61% of Gross's PIMCO holdings were tied-up in mortgage-backed securities that would have severely plummeted in value if Fannie Mae and Freddie Mac had declared insolvency (Source: Bloomberg, US Must Buy Assets to Prevent Financial Tsunami, Gross Says, 4 September 2008).
To further illustrate my point with an unrelated analogy, last year, legendary boxing trainer Angelo Dundee, a man that trained two of boxing's all time greats, Muhammad Ali and Sugar Ray Leonard, predicted that Oscar De La Hoya would beat Manny Pacquiao because Oscar's the better fighter. Even though the erosion of Oscar's boxing skills in recent years was clearly apparent to all boxing fans (due to his advancing age in a young man's sport) and Pacquiao was already considered by many to be the best pound for pound fighter in the world, Dundee's considerable boxing judgment was clouded by the fact that he was part of the De La Hoya camp at the time. Based upon Dundee's expert assessment of the fight, many boxing fans accordingly placed their bets in Las Vegas on De La Hoya. However, when the fight finally happened, Pacquiao so thoroughly dominated and battered De La Hoya for eight brutal rounds that De La Hoya decided to permanently retire from the fight game after the loss.
Returning to the investment world, let's consider one final example where a conflict of interest likely provided the impetus for a very public statement. In a story reported by MarketWatch on May 2nd, journalist Alistair Barr wrote, Buffett rejected the idea that U.S. taxpayers are paying more to fund bailouts of financial-services companies and the large economic stimulus package, noting that taxes in the U.S. haven't been raised for many years...Ultimately, the bailouts will be paid for by a drop in the purchasing power of the U.S. dollar, [Buffet] said. Buffet's simultaneous claims that Americans are not paying higher taxes and that the bailouts will be funded by devaluation of the US dollar is an oxymoron. Despite Buffet's claims, inflation is a significant tax in the sense that it reduces the real wealth of all citizens subjected to it. Inflation is merely a passive means for central bankers to tax their citizens and rob citizens of their wealth even though bankers duplicitously refuse to call it a tax.
Given Buffet's outdated strategy of buy and hold in current stock markets and the special favorable terms he was able to negotiate for the purchase of Wells Fargo and Goldman Sachs stock (unavailable to any other investor), government bailouts may serve his personal wealth strategy in the short-term at the same time they continue to be very destructive to the real wealth of all American families. In the long term, in light of Buffet's stubborn refusal to alter his buy and hold strategy, I strongly suspect that his inflexibility ultimately will cost him further significant losses.
In the end, one should never be led astray by the arguments of people labeled as experts without considering the existing numerous conflicts of interest that drive their public statements and actions.