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Warren Buffett: "Something SERIOUS Is About To Happen In America..." | GamingNest | YouTubeToText
YouTube Transcript: Warren Buffett: "Something SERIOUS Is About To Happen In America..."
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You know, I'm a student of history. I've
read a lot of it. And one of the things
you learn when you read history is that
the world is very good at creating
periods of calm that feel like they will
last forever.
People forget that the sea has a tide.
They forget that storms are not an
anomaly. They are an inevitability.
For the better part of a generation,
we've been sailing on a very calm, very
predictable sea.
And it has made us comfortable. It has
made us complacent. We've started to
believe that this is the new nature of
things. I'm here to tell you today that
the barometer is dropping. The sky is
changing color. And there is a
seriousness in the air that I have not
felt in a very long time.
Something is about to happen in America.
This is not a forecast. I don't have a
crystal ball. But I have been in this
business for over 80 years. I've seen a
thing or two. I saw the speculative
manias of the 60s. I saw the crushing
inflation of the 70s. I saw the crash of
1987, the dot bust, the financial crisis
of 2008.
They all had different names, different
triggers, but they all had one thing in
common. They were preceded by a period
where people collectively
started to believe that the fundamental
rules no longer applied. We are in such
a period now, and it is my duty as your
partner to talk about it plainly. Before
I lay out what I'm seeing, I'd like you
to do me a favor. in the comments. Just
write down one word that describes how
you feel about your financial future
right now. Are you confident, anxious,
confused, excited? I want to get a sense
of the room because the feelings you
have are part of the story. What is
happening is not a single event. It's a
convergence of four powerful currents
that are pushing us toward a very
dangerous set of rapids. and many people
are rowing as fast as they can directly
into them without even looking up. One,
the great disconnect. The casino has
swallowed the factory. For most of my
life, the stock market, for all its
daily gyrations, had a tether to
reality. It was connected, however
loosely, to the real economy, to the
factories making things, to the
railroads moving goods, to the
businesses selling products to people.
The price of a stock was supposed to be
a reflection of the value of the
underlying business. That tether has
been frayed to a thread. We have created
and now celebrate a system where the
financial economy has become almost
completely detached from the productive
economy. The stock market has
transformed from a place where you
allocate capital to productive
enterprises into a giant global casino
and the chips are moving faster than
ever. I look at what goes on and it's
astounding. You have people trading
options that expire in a few hours. You
have them buying digital tokens that
represent nothing, produce nothing, and
have no intrinsic value. All based on
the hope that someone else will come
along and pay more for it tomorrow. You
have companies with no earnings and no
plausible path to ever having earnings
being valued at billions of dollars.
This is not investing. It is gambling
pure and simple. The serious thing that
is happening is that this casino
mentality has moved from the fringes to
the very center of our financial life.
An entire generation is being taught
that the way to get rich is not by
building a business or saving your money
in productive assets, but by guessing
which lottery ticket is going to get hot
next week. Now, why is this so
dangerous? Because a system built on
speculation is a system built on sand.
It creates the illusion of wealth
without creating any actual value. When
you buy a share of a cryptocurrency, the
economy is not one bit more productive.
No new product has been invented. No new
service has been delivered. Money has
simply moved from one pocket to another
with a good chunk of it being scraped
off by the house.
When I buy a piece of the BNSF railroad,
that capital is used to lay new track to
buy more efficient locomotives to move
more of America's goods from where
they're made to where they're needed.
That is value creation. It makes the
whole pie bigger. The casino does not
make the pie bigger. It just re-slices
it. And in the process, it creates
enormous instability.
When the majority of market participants
are no longer focused on the long-term
value of a business, but on the
short-term direction of its stock price,
the market loses its function as a
rational allocator of capital. It
becomes a mood ring for the collective
psychology of the crowd. And crowds, as
history has shown us time and again, are
prone to fits of mania and panic. The
serious part is that the scale of this
casino is now so vast that its
convulsions threaten the real economy.
When the speculative bubble bursts, and
it will, because they always do, it will
not be a contained event. It will wipe
out the savings of millions of people
who mistook gambling for investing. It
will cause a sudden sharp contraction in
spending. It will force companies to lay
off real workers who were employed in
real productive jobs. The casino which
produced nothing of value will end up
destroying immense value in the real
world. That is the great disconnect and
it is the first sign of the approaching
storm. Two, the broken compass. We have
lost our fear of debt. I want you to
think about a simple business, a corner
grocery store. The owner works hard,
serves his customers well, and at the
end of the year, he's made a small
profit. He has a choice. He can take
that profit and use it to pay down the
loan on his building, strengthening his
balance sheet. or he can borrow even
more money to put a fancy new sign out
front, hoping it will attract more customers.
customers.
For a prudent business owner, that
decision is a balancing act. Debt can be
a tool, but it is also a risk. It puts a
claim on your future earnings. It
reduces your flexibility. It makes you
vulnerable to a bad month or a bad year.
A wise owner has a healthy fear of
taking on too much of it. As a country,
we have lost that fear. We have lost our
compass when it comes to debt. And I'm
not just talking about the government,
though that's the most glaring example.
The national debt is a number that is so
large it numbs the mind. But think of it
this way. Every single year, our
government spends well over a trillion
dollars more than it takes in. A
trillion dollar. That's a,000 billion.
We are financing our present by
mortgaging our future at a rate that has
no precedent in peace time. The
politicians will tell you it doesn't
matter. They'll tell you we can grow our
way out of it. But for a business to be
healthy, its earnings must grow faster
than its debt. Our debt is now growing
significantly faster than our economy.
This is the definition of an
unsustainable path. At some point, the
world, which has been very happy to lend
us money for a very long time, will
start to question our ability or our
willingness to pay it back in dollars
that have the same purchasing power. At
that point, interest rates will have to
rise dramatically, not because the
Federal Reserve wants them to, but
because our lenders will demand it. And
that will act like a tape break on the
entire economy. But this isn't just a
Washington problem. The same addiction
to debt has filtered down into the
corporate world and into our homes.
Companies have borrowed trillions of
dollars, not necessarily to invest in
new plants and equipment, but to buy
back their own stock, often at high
prices, to goose their earnings per
share. Their balance sheets are far more
leveraged and far more fragile than they
appear. And individuals have followed
suit. We have normalized the idea of
living on borrowed money. Car loans that
last 7 years for a depreciating asset,
credit card balances that are never paid
off. The margin of safety, the simple
idea of spending less than you earn, has
been replaced by a culture of instant
gratification financed by debt.
The serious thing that is about to
happen is the end of the era of easy money.
money.
For 40 years, we have been in a broad
trend of falling interest rates. That
trend has ended. We are now in a new
world, a world where debt has a real
cost. And that cost is rising. This will
be a profound shock to a system that has
been built entirely on the assumption of
cheap and abundant credit. Businesses
that were profitable only because their
borrowing costs were near zero will go
bankrupt. Homeowners who stretch to buy
a house with an adjustable rate mortgage
will face foreclosure.
And the government itself will find that
an ever larger portion of its budget is
consumed not by providing services but
simply by paying interest to its creditors.
creditors.
The crisis will be a crisis of
deleveraging. It is the painful
unavoidable process of unwinding decades
of imprudent borrowing and it will feel
for many like the world is going in
reverse. The broken compass has led us
to this point and the journey back to
solid ground will be a long and
difficult one. Three, the illusion of
control. The Fed's magic wand is losing
its power. During the financial crisis
of 2008, I said that our economy was
like a great athlete who had suffered a
cardiac arrest. It was flat on the
floor. The paramedics arrived. That was
the Federal Reserve and the Treasury.
And they used extraordinary measures.
They pumped trillions of dollars into
the system. They brought the patient
back to life. It was a necessary and in
my view a courageous intervention, but
it came with a long-term side effect. It
created a powerful illusion. The
illusion that our economic managers have
a magic wand. It fostered the belief
that no matter how reckless the
behavior, no matter how great the
crisis, the Fed can always step in,
print money, and make everything okay.
This belief often called the Fed put has
been the dominant psychological force in
the markets for over a decade. It has
encouraged risktaking. It has inflated
asset bubbles. It has severed the link
between risk and consequence. The
serious problem we now face is that the
magic wand is losing its power. Why?
Because the one thing that ties the
Fed's hands is inflation.
When inflation is low, they can print
money with relative impunity. But when
inflation is high and persistent, as it
has been, printing more money is like
trying to put out a fire with gasoline.
It only makes the problem worse. This is
the trap we are now in. The next time we
have a serious economic or financial
shock, and we will because that is the
nature of a market economy, the Fed will
face an impossible choice.
If they respond, as they did in 2008
with massive monetary stimulus to prop
up asset prices and bail out failing
institutions, they risk igniting an
inflationary fire that could destroy the
currency. If on the other hand they
prioritize fighting inflation by keeping
interest rates high and credit tight,
they risk allowing the financial shock
to cascade through the system, leading
to a deep and painful recession. They
have run out of easy answers. The
toolkit that seemed so powerful in the
last crisis is now filled with tools
that are either ineffective or have
calamitous side effects. The crisis that
is coming is not just an economic one.
It will be a crisis of faith. It will be
the moment when the public and the
markets realize that the wizards in
Washington are not in fact all powerful.
That there are some problems they cannot
solve. That there are some consequences
that cannot be bailed away. When that
realization dawn, the reaction will not
be calm. The belief that there is a
safety net under the tightroppe has
allowed people to take risks they never
would have otherwise. When they look
down and see that the net is gone, the
panic will be severe. The seriousness of
this situation cannot be overstated. We
have built an economic model that
depends on a perpetual rescue. We are
about to enter a period where that
rescue may not be possible. Four, the
forgotten virtue. Patience has been
replaced by impatience. The single
greatest advantage an investor can have
is a long-term horizon. If you buy a
piece of a great business and you are
prepared to hold it for 10, 20, or 30
years, the day-to-day noise of the
market is irrelevant. You can let the
business do its work, compounding your
capital year after year. Patience is not
just a virtue in investing. It is the
cornerstone of wealth creation. This
virtue is disappearing from American
life. We have become a society obsessed
with the short term. Corporate CEOs are
judged not on their 5-year plan, but on
their next quarterly earnings report.
Politicians are judged not on the
long-term health of the nation, but on
the latest poll numbers. And investors,
as we've discussed, are judging their
success not by the year, but by the
minute. This chronic impatience is a
destructive force. It forces corporate
managers to make foolish decisions. They
will cut back on vital research and
development or skimp on customer service
just to meet an arbitrary earnings
target for the quarter. They will take
on huge risks with massive acquisitions,
hoping for a quick payoff rather than
doing the slow, hard work of organic
growth. They are sacrificing the
long-term health of their business for
the short-term approval of Wall Street.
It paralyzes our government. We face
enormous long-term challenges. Our debt,
our infrastructure, the education of our
children. These are problems that
require long-term thinking and sustained
investment. But our political system is
now so focused on the next election
cycle that it is almost incapable of
tackling any problem that cannot be
solved or at least appear to be solved
in two years. And it is a disaster for
individual savers. It turns them from
owners into traders, from investors into
gamblers. It makes them chase fads and
sell in panics. It robs them of the one
great force that can build real wealth,
the power of compound interest, which
only works its magic over long stretches
of time. The serious thing that is
happening is that our entire system from
the boardroom to the halls of Congress
to the individual brokerage account is
being rewired for shortterm thinking.
And a system that is optimized for the
short term is by its very nature fragile.
fragile.
It has no resilience.
It has no margin of safety. It is not
built to withstand a storm. Conclusion.
The ship and the captain. So what does
this all mean? What is this serious
thing that is about to happen? It is not
a single event. It is the culmination of
these four trends. It is the moment when
a fragile system built on speculation
and debt with no margin of safety and no
effective tools to fight a crisis
finally gets tested by reality. The test
will come. I do not know the day or the
hour, but I look at the storm clouds
gathering and I believe it is coming
sooner than I once thought. This is not
a message of despair. I am and always
will be an incredible optimist about
America. The productive capacity of this
country is staggering. The ingenuity of
its people is limitless. We have faced
far worse challenges in our history and
we have always eventually writed the
ship. But the ship will be tossed and in
a storm. The fate of the passengers
depends on their captain. In your
financial life, you are the captain. You
cannot control the weather, but you can
control the seaorthiness of your own
vessel. This is a time for prudence. It
is a time for simplicity.
It is a time to remember the
fundamental, boring, but timeless rules
that build real lasting wealth.
Own productive assets. Don't own speculations.
speculations.
Keep a margin of safety. Don't use debt
to finance your lifestyle.
Think for the long term. Don't get
caught up in the daily noise. And above
all, be patient. The world is about to
offer you the opportunity to buy the
best businesses in America at bargain
prices. You only get that chance when
there is fear in the air. Prepare
yourself now. Get your own financial
house in order so that when that fear
arrives, you will not be a victim. You
will be a provider of liquidity. You
will be the one with the calm head and
the steady hand. You will be the one
ready to act. Something serious is about
to happen. But for the prepared, it will
not be a crisis. It will be an
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