Wednesday, June 30, 2010

China’s Next Great Leap Forward: Inflation


Yuan Takes Baby Steps Higher
China Looks to Balance Pressure From G20 Against the Worries of Its Exporters

BEIJING—A week after China loosened its grip on the yuan, the currency is up just 0.53%, a barely visible gain that lived up to the government’s promise to restrict the pace of any appreciation…

—The Wall Street Journal



Thus the Wall Street Journal discussed, earlier this week, the rise of the Yuan in the wake of the long-awaited and much-hyped shift to a flexible currency in a country not much given to flexibility.

And that policy shift preoccupied Wall Street for all of, oh, maybe 15 minutes.

Then, like our dog Charles, Wall Street got distracted by other shiny objects, such as Greek credit default swaps, World Cup Soccer, and yesterday’s Consumer Confidence Index—soon to be renamed the Consumer Anxiety Index.

But having heard more than one company discuss the increasing difficulty of sourcing low-cost manufacturing in China, we sought the counsel of a long-time acquaintance who made a business of manufacturing in China, and who has, over the years, provided a sharp, clear-eyed view of just such issues as the value of the Yuan and what it means for products made in China.

And what it means is not nearly as important as something else going on in China.


What is going on is this: costs in China are rising, and they will continue to rise for years to come. In fact, he said, costs will rise the rest of the decade at a rate that places China among the higher-cost manufacturing areas of the world.

And it has nothing to do with the Yuan.

What it has to do with is China’s “One-Child Policy.”

31 years ago, Deng Ziaoping (look him up, kids), declared a “One-Child Policy,” which is still policy today. And that policy, while not precisely one child (if a couple’s first child was a girl, the couple could have a second child), reduced the number of children-per-females from almost six in 1970 to roughly two today.

Thus, as our manufacturing friend pointed out, the demographics in China are shifting rapidly from a surplus of labor to a shortage. And by “rapidly” he means “the next three years,” when the 18-25 year old population drops by something close to one-third.

Now, the effect of this mind-boggling demographic shift was already felt, early this year.


After the Chinese New Year, a number of U.S. companies reported that an unusual number of factory workers failed to return from their inland homes, reducing their manufacturing efficiency, increasing costs-per-item, and forcing a shift to airfreight in order to get product to markets on time.

What is happening is this: as China promotes economic expansion away from the crowded south, jobs are opening up where none had been before.

To put numbers on it, according to our acquaintance, some factories were 25% short of labor after the Chinese New Year, and thus operated at as little as 75% of capacity.

And this problem for the manufacturing base in China is not going away: in fact, it will get worse as the labor surplus dries up.

After all, as our friend said, “If you could work in an office building near home instead of traveling a thousand miles back to a hot, dark, cramped, noisy factory—and make more money—wouldn’t you?”

We would indeed.



Jeff Matthews
I Am Not Making This Up


© 2010 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews, who also acts as an advisor: clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.

Friday, June 25, 2010

If ‘Victory’ Looks Like This, Give Us Some Failure


U.S. lawmakers meeting in the wee hours Friday reached a compromise on a bill that will redefine U.S. financial markets and firms for decades, all but guaranteeing the White House its second major domestic policy victory this year.

—The Wall Street Journal, June 25, 2010


So the Wall Street Journal describes the biggest financial overhaul since the Great Depression, agreed to after a 20 hour negotiating “marathon.”

And while we certainly hope the bill will do what its authors claim it will do—i.e. prevent another financial crisis—it’s hard to believe anything coming out of Congress, after an all-nighter, no less, will at the end of the day be more than a bunch of laws that make it tougher to do business here.

Our favorite provision—that mortgage lenders will now have to verify the borrower’s income, by gosh—tells you pretty much everything you need to know about how we got into this mess.

Unfortunately, the very structure of the discussions which led to this bill tells you how successful it will be in curbing financial speculation and future bubbles: probably not very.

That’s because, as in the healthcare “debate”—which was never really a debate, so much as a lecture from on high—the financial services “debate” included not one iota of analysis of how other countries actually accomplished good real-world outcomes during the crisis, as opposed to our very bad real-world outcome.

Did anybody on Capitol Hill bother asking themselves why Canada experienced no financial bubble, no housing crisis and no bank bailouts in the last three years? Anybody?

Of course not: that would be rational. And why would Congress want to be rational when so much money—and we mean campaign money—is at stake.

Still, the outcome here should be no surprise.

For all the talk during the recent healthcare “debate” of what a great job France, or England, or Sweden, or Canada does in providing universal healthcare to its citizens, nobody in Congress seemed to actually analyze those systems, and study how they might, or might not, apply here.

In fact, Congress didn’t even have to look overseas or north of the border to generate an informed view on real-world healthcare reform.

The Massachusetts Commonwealth has been trying to deliver universal healthcare to its 6.5 million patriots over the last three years. Anybody bother asking Massachusetts “How’s that going for you?” to judge how their experience might inform the effort to deliver universal healthcare to all 310 million Americans?

Nope. Instead, we got a healthcare “reform” bill put together by people who know very little about healthcare in the real world…and it came 20 years after such a bill might have helped prevent a problem in the first place.

Even worse, most of the healthcare “reform” particulars have been left up to the bureaucrats to implement, making employers reluctant to commit to new hiring at the very moment our economy needs new jobs the most.

All in all, healthcare “reform” looks a lot like today’s finance “reform,” come to think of it.

And both these pieces of paper, according to the Wall Street Journal, represent “victory.”

If ‘victory’ looks like this, give us some failure, please.




© 2010 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews, who also acts as an advisor: clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.

Friday, June 18, 2010

“Feels Like a Normal Recovery to Us”


So, how’s Europe really doing?

That was the question—sometimes the only question—at a Midwest investor conference this week.

And since the troubles in Greece, and in Spain, and in Hungary seem to have triggered the flip from near-euphoria among investors three short months ago to almost complete despair, it’s no wonder that’s what everybody wanted to ask about.

So, how is Europe really doing?

Not bad, actually.

As the CFO of a large dental supply company said, “Spain already had a 20% unemployment rate last year, and that hurt us.” This year, he said, his business in Spain was higher.

A global manufacturer of basic electronics components said more or less the same thing: there’s no noticeable slowdown in European orders, and continued strong growth in Asia.

Robert Half, which provides temporary and permanent staffing, likewise said they’ve seen no noticeable impact in their biggest European markets, which include France, Belgium and Germany, despite repeated attempts to get them to admit that something, somewhere, was going kablooey.

The most significant observations, however, came from Manpower, another publicly traded staffing giant.

Based in Milwaukee, Manpower actually does most of its business in Europe—revenues in France alone are almost triple the US. So investors at the breakout session were, naturally, pretty nervous about what the company is seeing over there.

And what they’re seeing is no big change.

“If you talk to companies in Europe,” the Manpower guy said, “they’re feeling pretty good.” Then, echoing the dental company’s comments, he added, “These are issues that have been there…and at least they’re starting to deal with them.”


Okay, you might be wondering, but what about the United States?

Well, for all the worries about a “double-dip” here, business seems to be humming along too.

Not screaming, but humming.

The aforementioned Robert Half pointed out that the temporary help market has been on fire, with 300,000 people placed in the first six months of the recovery. “And that slope is steeper than it’s ever been….The best on record.”

That’s right: “the best on record.”

When, exactly, do those “temps” become “perms”? That’s a question the Robert Half guys could not answer, but for now, the pace of the business recovery seems no different than most recoveries.

Indeed, one large home furnishings retailer we visited at the conference on the same day Best Buy upset Wall Street’s Finest with news that their customers seem to be consuming less—and why shouldn’t they be, since half the stuff Best Buy sells can be downloaded directly to your iPad, while the iPad itself makes Best Buy’s computer department obsolete?—has seen no change at all in their customers’ buying habits.

And we heard the same from restaurant chains, a cruise line and, most interestingly of all, every transportation company in the house.

As one such CEO said, “In March and April the recovery continued, and in May and June we’ve seen the normal seasonal build from there.” Asked about the economy as a whole—and this is a guy whose trucks move product all around the United States—he summed it up this way:

“Feels like a normal recovery to us.”



Jeff Matthews
I Am Not Making This Up


© 2010 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews, who also acts as an advisor: clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.

Monday, June 14, 2010

Rattner Still Doesn’t Get It


The “Rattner” of our title is Steven Rattner, whose recent Op-Ed piece in the Wall Street Journal was titled “Wall Street Still Doesn’t Get It.”

His editorial—timed to promote a new book, naturally—offered a blistering critique of Wall Street’s solipsistic mindset through the prism of his appearance at a recent gathering of “turbocharged, chest-thumping hedge fund investors” at the Ira W. Sohn Investment Research Conference:

Drawing on my stint in the Obama administration, I tried to offer a perspective on why the president and his advisers made the policy decisions they did as they battled the worst economic and financial crisis in 70 years.

I flashed slides bubbling with wacky, heat-of-the-moment quotes from sages (including two Nobel Prize winners) [sic] to remind the audience of the administration's wisdom in resisting the many calls for ill-advised, extreme actions such as nationalizing banks. Given my former role as lead adviser on autos, I zeroed in on the rescue of the car companies as an example of sensible policy [sic]. I noted the increasingly optimistic GDP estimates from one representative forecaster. And so on. A chilly breeze from the audience blew toward the podium.

I pivoted to my next point, trying to explain that the current hostility toward Wall Street on the part of the American citizenry was both deep and understandable. But my attempt to award the administration credit for trying to manage the anger by recalling President Obama's remark a year ago to a gathering of bankers—"My administration is the only thing standing between you and the pitchforks"—was met with stony silence. By the time I arrived at a key slide—one that ascribed the current angry mood in part to record levels of income inequality in America—at least one in the crowd could take it no more and booed loudly.

--Steven Rattner, "Wall Street Still Doesn't Get It."

Relying on Nobel Prize winners as “sages” and using the auto bailout to highlight “sensible policy” might well cause a reader to wonder, “Who is Steven Rattner?”


Here’s how the Wall Street Journal identified him in a June 2, 2010 article titled “SEC Wants a 3-Year Ban from Street for Rattner”:

Mr. Rattner, who last year spearheaded the White House's auto-industry restructuring, is among the most prominent figures touched by the case, which is being conducted by both the SEC and New York Attorney General Andrew Cuomo.

The three-year investigation centers on allegations that the New York state pension fund was corrupted by a kickback plot in which money managers made illegal payments to secure business from the fund.

The government's focus on Mr. Rattner involves his activities at Quadrangle Group LLC, a private-equity firm he co-founded. The firm paid a political operative $1.1 million in exchange for helping win a $100 million investment. Mr. Rattner, who is no longer with Quadrangle, also helped arrange to distribute a low-budget film produced by the brother of a pension official.

That’s right. That’s the guy who’s lecturing Wall Street.

Of course, Mr. Rattner makes no mention of this investigation in “Wall Street Still Doesn’t Get It.”

Instead, he describes himself “a long-serving veteran of Wall Street,” before using a standard rhetorical tactic of empathizing with his target before castigating it: “…the financial industry is one of the greatest success stories in U.S. business history,” he declares, then goes on to berate Wall Street for “conveying little sympathy for the many suffering Americans and brushing off responsibility for the excesses of the last bubble.”

Now, there are at least a couple things wrong with this picture.

First, Rattner has staked his view of Wall Street at large through the prism of a relatively small gathering of hedge fund managers. And hedge fund managers, as Rattner surely knows, were not, in fact, responsible for “the excesses of the last bubble.”

They lent no money to home-buyers who couldn’t afford it; they packaged and sold no “liar loans”; and the government bailed out not a single hedge fund during the crisis.

Chrysler, yes. GM, yes. Fannie Mae, yes. Freddie Mac, yes. AIG yes. Citi, yes.
Even, yes, GE, which received a bailout of sorts when the Feds guaranteed the commercial paper market to which Jack Welch’s legacy had sadly become addicted.

Not a hedge fund in the group.

Second, many of the hedge fund managers at that very same gathering had been warning of trouble to come during the bubble, for many years, and to no avail.

Indeed, had Mr. Rattner attended the same conference in May 2008, he would have heard David Einhorn present the scary facts about Lehman Brothers just a few months before that once-mighty firm went, as we say, tapioca, and nearly took down the developed world with it.

For his efforts, of course, Mr. Einhorn was berated by Lehman, by Wall Street’s Finest, and by ignorant politicians who never wanted to hear the bad news about America’s great housing boom in the first place.

And it is that brand of ignorant politicians whose names tend to pop up in news articles relating to Mr. Rattner.

Here’s what Quadrangle itself had to say about the aforementioned New York state pension fund matter in an April 15th press release from the New York Attorney General’s office announcing nearly $12 million in payments related that office’s ongoing investigation:

Quadrangle stated, “We wholly disavow the conduct engaged in by Steve Rattner, who hired the New York State Comptroller’s political consultant, Hank Morris, to arrange an investment from the New York State Common Retirement Fund. That conduct was inappropriate, wrong, and unethical. We embrace the reforms in the Attorney General’s Code of Conduct, including the campaign contribution and placement agent ban, which are vitally necessary to eliminate pay-to-play practices from the public pension fund investment process. We urge others in the industry to follow.”

Quadrangle has agreed to fully cooperate with the Attorney General’s investigation as to Rattner and others.

Hank Morris, for the record, isn’t the kind of guy who comes to mind when you think of what made “the financial industry...one of the greatest success stories in U.S. business history.”

Here’s what the New York Times had to say about Morris:

On March 19, 2009, Mr. Morris and David Loglisci, another advisor, were charged with 123 counts - including bribery, grand larceny, money laundering and fraud - in an indictment that said they had turned New York's $122 billion pension fund into a criminal enterprise. The scheme netted them and other Hevesi associates tens of millions of dollars in kickbacks from firms investing the fund's money, the indictment said.

Mr. Morris and Mr. Loglisci, the top investment officer of the pension fund, were accused of directing half of the $10 billion that the fund invested in so-called alternative investments, like hedge funds and private equity firms, to companies that used Mr. Morris or his associates as paid intermediaries. Firms that were not willing to pay were often turned down, according to the indictment.

On March 10, 2010, Mr. Loglisci pleaded guilty to securities fraud…

Now, we make no claims here. We know none of the figures involved in the “criminal enterprise” as the Attorney General described the New York state pension fund. We hope Mr. Rattner and the book he is promoting as part of his sudden appearance on the Wall Street Journal’s Op-ed page will continue to be successful.

And we agree with him that it may be unseemly for some hedge fund guys—those who made it through the crisis many of them foresaw—to hold a conference at a ritzy hotel in New York City while unemployment rates hover in a range most Americans have never seen and foreclosures continue to take people out of their homes. (We weren’t at the conference and we don’t know how accurately Mr. Rattner’s op-ed piece captured the mood.)

But for the political class, of which Mr. Rattner—late of the Obama administration—has some familiarity, to shift the blame for all that happened to Wall Street is nothing more than a transparent attempt to stay in power and continue to benefit from the type of nonsense that goes on behind the scenes when money moves from the hands of those who earn it to those who spend it, in the name of “good government.”

And by the way, if Mr. Rattner thinks the “average American worker” he so lovingly holds up in his remarks hasn’t figured out all that is wrong in Washington, well, he doesn’t get it.

Those “pitchforks” aren’t all heading to Wall Street...



Jeff Matthews
I Am Not Making This Up

© 2010 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews, who also acts as an advisor: clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.

Thursday, June 10, 2010

Would You Buy This Stock? Then Why Own The Bonds?


Keeping in mind Warren Buffett’s dictum to “buy, for a rational price, a piece of a business that you’re reasonably confident will have materially higher earnings 5, 10, 20 years from now, and never sell,” we hereby examine an incorporated entity which we believe represents a healthy slice of the American landscape.


The enterprise in question has been in existence for more than 200 years, and that alone is remarkable given the horrible mismanagement it has suffered over that time, particularly in the last few decades.

Looking at the income statement, we see that annual revenues approximate $15 million, which is unfortunate because expenses are running $18 million this year and are expected to rise to $20 million next year.

This upside-down “income” statement thus explains the balance sheet, which shows $17 million in general obligation debt.

Worse, the enterprise carries an eye-opening off-balance sheet liability in the form of a defined-benefits pension plan. (Our enterprise unfortunately never switched over to 401-K plans, and so it is stuck with an old-fashioned defined-benefits pension plan and its old-fashioned liabilities.)

The plan is somewhat underfunded. And by “somewhat” we mean “humongously.”

Specifically, the pension liabilities (accruing to a largely unionized workforce) stand at around $35 million.

Assets to support those liabilities, meanwhile, cruise in at a cool $4 million.

So on top of the $17 million in debt outstanding, add a $31 million unfunded pension obligation—and consider that we have no details on the assets themselves or the assumptions used to define the liabilities, so the net obligation could be worse.

All in all, our enterprise generates negative pre-tax income but carries close to $50 million in debt and long-term obligations.

So, to our question, “Would you buy this stock?” the answer, of course, is “No.”You’d pass on the opportunity to buy, and you might even sell it short.

And maybe—after the poor suckers who own the bonds really take the place over, clean house and install good management—you’d revisit the situation.


The “enterprise” in question is not, however, a company in the publicly-traded sense of the term.

It is a city—Central Falls, Rhode Island—whose tale of woe was only partly told in yesterday’s Wall Street Journal, and it is a stark sign of things to come for America’s municipalities.

For while Central Falls appears to have been run into the ground by its own unique blend of corruption and unsupportable promises to unionized employees—according to the Providence Journal, the mayor hired an old pal to board up 200 abandoned buildings at an average cost of $10,000 a piece, while nearby Providence pays $660 a house—it is by no means alone.

Indeed, our backyards teem with thousands of Greeces and Hungarys that, like Central Falls, are in far worse shape than those countries. They are already bankrupt in fact, if not in name.

Yet, oddly, for now, the world—and American fixed income players—seem to focus exclusively on the problems of Greece and Hungary, Spain and, perhaps even the United Kingdom, while using the American Dollar and our own long-term debt obligations as what the press likes to call “safe havens.”

But if you wouldn’t own them as an imagined stock, why would you own their very real bonds?



Jeff Matthews
I Am Not Making This Up



© 2010 NotMakingThisUp, LLC

Photo Courtesy of Providence Journal

The content contained in this blog represents only the opinions of Mr. Matthews, who also acts as an advisor: clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.

Wednesday, June 02, 2010

“Like Three iPads a Second” or "One Every Three Seconds"?: The Most Helpful Call You Will Receive Today


The Most Helpful Call we here at NotMakingThisUp think you’ll get today is brought to you by, well, we here at NotMakingThisUp, with the assistance of a loyal, sharp-eyed reader named David.

And the call is this: read the Wall Street Journal’s “All Things Digital” interview with Steve Jobs.

The article, which was written by John Paczkowski and based on an interview conducted by Walt Mossberg and Kara Swisher, was posted at 5:45 p.m. (PST) yesterday and it contains at least one stunner that you have not seen anywhere on the tape this morning—at least as far as we can tell.

And that stunner is this: Apple is selling something on the order of 3 iPads each second, at least according to the Wall Street Journal, which would be a remarkable piece of data—or hype, depending on whether you work in Redmond, Washington or not—if it were true.

The statement in question occurs early in the interview, in response to the inevitable question about Apple’s fight with Adobe over the iPad’s inability to use flash:

Walt: What if people demand Flash. What if they say the iPad is crippled without Flash.

“We’re just trying to make great products,” says Jobs. “We don’t think Flash makes a great product, so we’re leaving it out. Instead, we’re going to focus on technologies that are in ascendancy. If we succeed, people will buy them and if we don’t they won’t….And, so far, I have to say, people seem to be liking the iPad. We sell like three iPads a second.”

—The Wall Street Journal

Three of anything per second equals 180 per minute; 10,800 per hour; 259,200 per day; and 7,776,000 per month.

Now, 7,776,000 per month seems a bit of a stretch given that Apple just announced it has sold somewhat more than 2 million iPads in the first two months of its launch, which is why we rushed the news to print earlier this morning, only to be corrected by a sharp-eyed reader that the transcription was wrong.

And indeed, after watching the video itself, it turns out, the transcript is wrong.

What Jobs says, in fact, is:

“We’ve sold one every three seconds since we launched it.”

One every three seconds amount to 864,000 a month, roughly in line with the reported sales to date.

Nevertheless, despite the mix-up at the Wall Street Journal and the 6-fold increase in implied iPad sales by that transcription error, we still find the Journal’s interview with Steve Jobs is the most helpful call you’ll receive today.

And thanks to David V, the Journal stands corrected.


Jeff Matthews
I Am Not Making This Up

© 2010 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews, who also acts as an advisor: clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.


Tuesday, June 01, 2010

2010 Pilgrimage, Part IV: Wine, Wayne and Other International Issues


It is Saturday morning, May 1, 2010, and the Berkshire Hathaway annual meeting has been under way for a little less than an hour—or two hours, if you include the movie that traditionally kicks things off at precisely 8:30 a.m.

And already things here seem very familiar: Warren Buffett and Charlie Munger are doing what has evolved over the years into something like an extremely intelligent comedy act. Buffett plays the ebullient, eager-to-please elucidator of all things financial; while Munger provides the dryly cantankerous Voice of Reason…and all to the crowd’s amusement and pleasure, not to mention intellectual stimulation.

This is, after all, a shareholder meeting with 17,000 people hanging on the two men’s words—not a comedy club.

Nevertheless, so familiar are some of the routines that I find myself at times writing a kind of short-hand when Buffett’s answers drift into familiar ground.

This ranges from the substantive—such as “Gen Re Derivatives Story,” when Buffett rehashes his account of the 23,000 derivatives contracts Berkshire inherited when it acquired Gen Re, an experience that gave Buffett an early heads up into the dangers of those instruments—to the mildly amusing, such as “Mae West Joke,” when Buffett retells a hoary line from that vaudeville-era actress.


It is a joke he has used over many years, in annual letters and here on stage, and it gets fewer laughs each passing year.

Having come early to Omaha—three days ago—to deal with book-related issues as well as to get prepared for today’s meeting, hearing old stories getting dredged up is a bit of a let-down, particularly after the most interesting topic (Buffett’s investment in Goldman Sachs) has been entirely dispensed with in the first 45 minutes.

But it was worth coming early, before the Friday crush.



Indeed, arriving Thursday morning at Eppley Airfield—that is the official name of Omaha’s airport, and I find the term ‘airfield’ to be a pleasant reminder that we are in the Midwest, where established nouns, such as soda ‘pop,’ hang on longer—had a very different feel.

The pace was quite relaxed, and the shareholders getting off the planes all seemed to hail from long distances, far away from both Omaha and America.

In fact, the very first person I met after checking in with Jim—the friendly and hyperactive Hudson manager at the airport Hudson Bookseller, where Buffett and Munger book titles crowd the shelves—was a young, professional Buffett follower from Sydney, Australia.

The investor introduced himself as “Wine”—at least that’s how his name sounded to ears still plugged from connecting flights and a brain groggy from a 4 a.m. wake-up call—and I repeated it dutifully, as in, “Wine, it’s nice to meet you.”

Now, putting aside the unusual name—at least as I caught it—the fact that a mutual fund manager from Sydney, Australia, was the first person I met in Omaha was not nearly as exotic as it might seem in the first place.

Buffett’s patient, informed, long-term style of investing—with its particular premium on family-owned and run businesses—seems to resonate especially forcefully with non-U.S. business owners.

Chalk this up perhaps to America’s brand of naked capitalism and Roosevelt-era trust-busting, which fostered Buffett’s cherished American ‘meritocracy’ while outside the U.S. capital was able to remain far more concentrated, with a larger portion of important businesses to this day under family control.

Indeed, the non-U.S. contingent of investors has grown so large that Buffett cancelled the meet-and-greet with international investors he and Munger used to hold Saturday afternoon. As he explained the change in his February shareholder letter, at last year’s international gathering “my simply signing one item per person took about 2 ½ hours.”

But that hasn’t stopped them from coming.

And as the world has grown smaller, degrees of separation have diminished. For example, “Wine,” it turned out, knew a friend and terrific analyst from Sydney. Turns out they had been on opposite sides of a somewhat controversial but immensely successful financial company whose CEO reminds Wine and others of Warren Buffett.

We chatted about what Wine does for a living (he runs a mutual fund), where he’d been before coming to Omaha (in Canada visiting Fairfax Financial, the aforementioned company), and where he was going afterwards (to Los Angeles, along with a healthy minority of fellow international Berkshire shareholders, to watch Charlie Munger hold forth at the Wesco Financial meeting the following week).

Wine’s extended stay in North America is not, it turns out, at all unusual. Most of the international investors use the annual Berkshire meeting as a chance to visit friends, investors, and other companies here in the United States and elsewhere.

Hence, the extraordinary portion of international fliers coming in early, including “Wine.”

Before leaving the Hudson bookstore and heading to my hotel, I said goodbye to “Wine.” When he smiled at my pronunciation, I asked if I’d gotten it wrong.

“Well,” he said, “it’s ‘Wine.’”

“Wine,” I repeated.

“No,” he said, and then he Americanized the pronunciation for me: ‘Wayne.’”


Somewhere here at the Qwest Center, among the sea of 17,000 shareholders listening to Buffett and Munger holder forth, Wayne is listening, along with hundreds—perhaps thousands—of others from countries around the world.

In fact, one of them—from Bonn, Germany—is right now asking Buffett about how he plans to protect Berkshire from fallout over the financial implosion in Greece.

Buffett, who knows how to play a crowd for laughs, answers:

“What happens in the Greek situation and what may fall out from that is gonna be very important, and Charlie’s gonna explain what that might be.”

To be continued…




Jeff Matthews
I Am Not Making This Up

© 2010 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews, who also acts as an advisor: clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.