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  • mingsphinx mingsphinx May 30, 2010 5:20 AM Flag

    Why Buffett Sold

    Where is California? Kiplinger draws up a list of the best places for Americans and not one Californian city makes the cut. What happened? It is actually places like Topeka and Des Moines that are now drawing people from California. Imagine if the population of California in 2020 is lower than the levels it was at in 2000. The state would have lost around 5-8 million people and the economic impact would be devastating. The best and the strongest evacuate whilst the poorest and the weakest are left behind because there is nowhere else for them to go to. The state’s demographics will change and oddly enough that will build a stable political base. Unfortunately, it is exactly just such politics that will drive ever more people to abandon the state of California.

    If you are in WFC for the long haul, how do you think your investment will be affected?

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    • 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.

    • "Imagine if the population of California in 2020 is lower than the levels it was at in 2000. The state would have lost around 5-8 million people and the economic impact would be devastating"

      Surprise, surprise, you are WRONG AGAIN (well done, idiot). CA population is expected to grow by 50% by 2050. Is there something in the water in Singapore that screws up your brain???

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