GSE Report

To paraphrase Dr. Seuss, we are living through a period of incredible “thinks”:

• In the next 10 days, 112,000 people in the US, Europe and Japan will reach the retirement age of 65.
• In each of the last three years, sales of adult diapers in Japan have exceeded sales of baby diapers.
• Meanwhile, 97 out of every 100 births now occur in developing countries.
• 56% of the world economy is currently being supported by official policies of zero interest rates.
• In the last 15 years, the value of prime London real estate has quadrupled; and yet today, UK interest rates are the lowest they have been in 300 years.
• In the next 10 seconds, the US national debt will have risen by $322,000.
• 2015, the U.S. federal government will spend $3.77 trillion (an amount larger than Germany’s GDP), while 50 million people live in poverty in the United States.
• The number of U.S. government regulations increased from 834,949 in 1997 to 1,040,940 by 2012.
• In the last 10 years, the number of industrial robots is up 72%, while the number of US manufacturing jobs is down 16%.
• And by 2023, the average $1,000 laptop will be able to communicate at the speed of the human brain (and 25 years later, at the rate of the entire human race).

"The international order is literally fraying at the seams."

"All's changed, changed utterly."

New barriers and practices are challenging the principles of an open, fair, economic competition.  And in a globalized world, threats as diverse as terrorism and pandemic disease cross borders at blinding speeds. The sheer rapidity and magnitude, the interconnectedness of the major global challenges demand a response—a different response, a global response involving more players, more diverse players than ever before.

This has all led to a number of immediate crises that demand our attention from ISIL to Ebola to Ukraine—just to name a few that are on our front door…

The international order that we painstakingly built after World War II and defended over the past several decades is literally fraying at the seams right now.

…The truth is we will likely be dealing with these challenges of social upheaval not just in Iraq and Syria, but across the Middle East in the wake of the Arab Spring, which will take a generation or more to work itself out.

Terrorism knows no border and its danger could affect several countries outside the

Middle East. If we ignore them, I am sure they will reach Europe in a month and America

in another month. You see how they carry out beheadings and make children show the

severed heads in the street. It is no secret to you, what they have done and what they

have yet to do. I ask you to transmit this message to your leaders: “Fight terrorism with

force, reason and speed.”

King Abdullah of Saudi Arabia

Al-Arabiya [Saudi Television]

August 30, 2014

"Today, the civilized world must deal with the reality of the world’s first terrorist nation state in the middle of what used to be Iraq."

Robert L. Ehrlich Jr.

Former Maryland Governor and member of Congress

Baltimore Sun, July 20, 2014

 While the impact of the internet and computers is evident, what I’m suggesting is that we are going to see multiple technologies go from deceptively hiding in the background, with the pace of change they promise frustratingly slow, to suddenly taking center stage and becoming disruptive. It will be as if the steam engine and electricity and the automobile and telecommunications all appeared at the same time, after having been developed in the background for many decades.

 “At At the Berkshire Hathaway Annual Meeting, Chairman and CEO Warren Buffett and Vice Chair Charlie Munger were asked: 

“Do you think we need housing reform? How do you think we should do it, and should Berkshire be involved?” 

Warren Buffet responded: 

I think the 30-year fixed rate mortgage is a terrific boon for homeowners, but it’s not a great instrument to own as an investor. It’s done a lot for home ownership in the country. Let people get into homes earlier, kept costs down — the government guarantee keeps the cost down. 

Home mortgages are an $11 trillion market, and there is no capacity for private industry to do the job. The question is how to keep the government in the picture without keeping politics in the picture. You’ve found Fannie Mae and Freddie Mac doing dumb thing with politicians prodding them into it. 

I think there could be a way. I wrote an article 30 years ago when [savings and loan institutions] were falling apart, suggesting how to get the private sector into pricing and evaluating risk. But essentially the government being the main insurer. There could be a way that model works in terms of home mortgage insurance. 

I don’t think we’d likely be a player, because others would be more optimistic in setting rates. In the end the government would need to be the main insurer. Perhaps private industry could set the price and take 5%, and the government would take 95%. 

I do think it’s important, mortgages for homes, to get a correct national policy. I know it’s being worked on, and I think very unlikely that Berkshire will play any part in it... Charlie?

QE has distorted the prices of all traditional asset classes to such an extent that none currently promises a fair return with modest risk.... Because the dominant force in securities-price movements today is government policy, particularly the governmental buying of bonds and stocks, there is a vulnerability to all trading and investing prospects that cannot be assessed or measured with confidence...

Since there is no history of Americans losing confidence in the basic soundness of their currency and their government, and since monetary policy today is so manipulative and large, it will be hard to parse the reasons for any particular market moves in 2014.