Buffet's genius, comments below, imo, he deals with the big issues and knows that he can't know exactly how they play out. And he keeps $20 billion of cash on hand. That $3+ trillion could be on the Fed's balance sheet for a long time to come. We could even grow our way out of it, with our energy revolution, as big as the industrial one. We have an advantage over Warren, we can invest in smaller cos that he can't even consider.
Even so, he said, "the world won't end" and the market will survive. He repeated his long-held "faith" in Fed chief Ben Bernanke and said "we have benefited significantly, and the country has benefited significantly" by the Fed's actions.
Conceding the Fed's buying program is a "huge experiment," Buffett said, "This is like watching a good movie, and I do not know the end."
He also praised President George W. Bush for coming to the financial system's rescue at the height of the credit crisis in 2008 with what Buffett called the 10 smartest words in economic history: "If money isn't loosened up, this sucker could go down."
A Schwab commentary below, seems the world spends a bunch of time trying to figure out if US GDP will be 3.5% or 2.5% in a couple of quarters. The market by some forecasts is still selling for around 15x forward earnings. Even at a 3% 10 yr T note, a 20x stock multiple wouldn't be exorbitant.
We recently entered the fifth year of the bull market that began in March 2009, in conjunction with all-time highs reached for both the Dow Jones Industrial Average and the S&P 500® Index. But investors are generally flummoxed, and one of the most common questions I get when I'm on the road talking to clients is, "Why are the stock market and the economy/fundamentals so disconnected?"
I've written and spoken a lot over the years about the relationship between the economy and stocks, but it's worth a refresher. US real gross domestic product (GDP) growth has averaged a relatively paltry 2.1% since the recovery began in mid-2009, yet the stock market is up more than 150% since its low the same year.
Yes, the economy suffered consecutive mid-year slowdowns in 2010, 2011 and 2012, and the stock market behaved poorly during those stretches as well. We're likely in a milder version of a slowdown this year—for the fourth consecutive year. But the stock market has barely blinked, so far.
"Interest rates must rise—it's inevitable. And if they do, bond prices will fall." Your hear this one a bunch.
The Japan 10 yr T , 8% yield in the early 90s, went to 2% in the late 90s and it's 0.6% now. Not sure anything is "inevitable", at least in finance. The statement is still not disproven but we're pushing 2 decades. I also hear the comment, that we will never be Japan. Probably the same folks who said home prices have never fallen, never will. The difficulty is not in crafting a response to expectations, it's getting the premise right to begin with. We could be stuck at 2% 10 yr notes for a long time. The old cyclical assumptions have proven to be wrong, at least so far.