Is the Oracle of Omaha Overwrought? - 08/17/11

By Buffett's generally optimistic standards, he appears to be getting somewhat more nervous.

As Jeff "JMatt" Matthews' blog detailed on Monday, it appears that Warren Buffett is getting somewhat more nervous about the U.S. economy.

On the basis of his approximate $50 billion net worth, the Oracle of Omaha has little reason to be nervous. In the main, Warren Buffett is an optimist; it has been his constructive view of the world's economies that has encouraged him in his bold and concentrated investment and acquisition strategies.

But, by his generally optimistic standards, he appears to be getting somewhat more nervous. Consider this excerpt from his recent New York Times op-ed): Twelve members of Congress will soon take on the crucial job of rearranging our country's finances. They've been instructed to devise a plan that reduces the 10-year deficit by at least $1.5 trillion. It's vital, however, that they achieve far more than that. Americans are rapidly losing faith in the ability of Congress to deal with our country's fiscal problems. Only action that is immediate, real and very substantial will prevent that doubt from morphing into hopelessness. That feeling can create its own reality.

JMatt justifiably highlights Buffett's phrase -- "that feeling can create its own reality" -- which, upon reflection, seems to jump off the New York Times editorial page. It seems Buffett, too, is cautioning with regard to the risks associated with an acceleration in the negative feedback loop that I cited in Monday morning's "Thrown for a Loop."

As I have written, confidence is contagious and so is lack of confidence!

The threat of an amplified negativity loop and of a more pronounced loss in confidence (business spending and hiring intentions coupled with consumer spending and investing intentions) are reasons why my concluding post last night ended with the following phrase: "While the market currently presents uncommon values, the investment mosaic is complicated by our uncommon times."