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  • mingsphinx mingsphinx Jun 9, 2010 8:12 PM Flag

    Why Buffett Sold

    What I am referring to is the exodus of people who form the economic backbone of California. Imagine if you will a family of four where the husband is an engineer and the wife an accountant. They have a combined household income of $150,000. In California that is comfortably middle class. The husband gets laid off and the family has to get by on the wife’s salary plus unemployment benefits which the husband draws. For the last two years or so they make up for any deficit in expenditure by tapping on their savings. Initially it feels great not to be at work but soon the financial pressures start to put a strain on the marriage. After mortgage payments, car payments, insurance, food and gas, there is not much left over for the fun things that used to be the glue which kept the marriage together.

    Now that the husband’s extended unemployment benefits have come to an end and the family’s savings all used up, they have practically reached the end of their Californian road. There is no way to make do on just one income even if they moved to a cheaper, more dangerous neighborhood. Fortunately for this couple they have family back in the Mid West. The only way to keep the family unit together is to sell their Californian home and take their home equity to restart life some place where the cost of living is lower. At current prices they are only able to get $100,000 in equity from a sale; they used to believe that they had $500,000 in equity. They sell the second car and pay off the loan on the first and move in with the husband’s parents.

    It feels awkward at first but their parents go out of their way to make them feel welcomed. There is nothing like having grandchildren running around the house to make an old couple feel happy. Without mortgage and car payments plus significant savings to draw on, the couple can now both look for work without the unhealthy pressure of a mental time bomb. Chances are they will not earn as much as they did in California but then again things are cheaper outside of California. In time, because the economy in the Mid West actually works, they both find jobs and the children settle happily in their new schools where knifes and gang fights are unheard of.

    Such people may seem small to you, but without them, economic production would be virtually impossible. The scenario I have painted have people moving in search of work; but as the people move, businesses will have to move with them. It is a vicious cycle. Even if California’s population grows, the loss of the most economically productive class is perhaps inevitable. Population growth in such a case would actually be adverse as it would mean that the strongest leave whilst the weakest are drawn in. Many countries have large populations but can never seem to get anything done. When it comes to people, it is the quality and not the quantity that matters.

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    • "What I am referring to is the exodus of people who form the economic backbone of California"

      According to you, CA has no economic backbone. Get real, where are Californians going to go, Idaho? You are such a friggin nutjob.

      • 2 Replies to usethaforce
      • The shameful effort to get retail investors to buy WFC stock at ridiculously high prices has been unconscionable. Unfortunately, it was successful. Perhaps there is disagreement on whether or not people are leaving California, but it is just a conjecture that is up for debate. I regularly read reports of families who have moved out of California and thus believe that something akin to an exodus is happening. Some of the less charitable journalists have called it a White flight; like the stampede out of Detroit in the 1960s and 1970s. Apparently, even Bend, Oregon is regarded as safer, prettier and sunnier than California.

        The opinion I express is actually a statement of the obvious – if people of the type I am describing are in fact moving out of California, then the implications for the Californian economy and by extension the fortunes of Wells Fargo are dire. However, it is up to investors to make up their minds what is actually happening. There is no need for such ugly name calling. I have not reported you to Yahoo! because I find making such reports childish. But I will have you know that you are a disgrace.

      • Hopefully all of CA will move to Singapore where they can bask in your brilliance. Seriously, it's easy to pontificate from thousands of miles away. You have NO CLUE what's going on in CA and what people are doing (or where they are moving). You are just as wrong about CA as you have been about Buffett selling. Your credibility is ZERO.

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