Berkshire Hathaway (Berkshire Hathaway), vice chairman, Charlie Munger (Charlie Munger) urged cautious about trend in recent years of quantitative easing and the huge fiscal deficits, he warned that the United States is in uncharted territory, no country like the United States now large-scale printing money for a long time, but won’t cause trouble, he thinks the United States add to the deficit has been very close to the edge of the play with fire. He also noted that no one had expected that China was now having the best economic record the world has ever seen.
Munger, a close ally of Warren Buffett, first predicted that the COVID-19 vaccine would be trivially small within a year or so, because it would already be widely distributed. “It’s just amazing,” he said at a Caltech event as the first COVID-19 vaccines were delivered to the US. “I watched polio being completely killed by the vaccine, and they spread it around the world so quickly that it makes you feel dizzy.” Remarkably, the COVID-19 outbreak has had a huge impact on the airline industry, costing Berkshire Hathaway Inc. ‘s Precision Castparts billions of dollars.
Mr. Munger, 96, also talked about the quantitative easing and fiscal deficits the U.S. has seen in recent years, and described the dangers of excessive government spending and monetary easing, as well as key features investors need to focus on. “We’re in uncharted waters right now,” he said. “Nobody is spending as much money as we are, and we haven’t had any trouble in a long time. I think we’re close to playing with fire. Unprecedented currency trading would be dangerous, as would the loose and aggressive fiscal spending of recent months. I remember having a five-course filet mignon dinner in Omaha when I was a kid, when it was 60 cents, and the world really changed.”
He added: “No one knows when a bubble will burst, and even if it’s the Nasdaq, that doesn’t mean it won’t come. It’s just incredible. It’s never been like this before. The valuations of tech companies have also soared in recent years, and if you look at Apple’s value, it’s a dramatic change that has barely happened in the entire history of world finance. Who would have thought that a country run by the Chinese Communist Party would have the best economic record the world has ever seen.”
The US is now close to passing the COVID-19 stimulus package and the markets are watching the announcement of the Federal Reserve’s final meeting of the year and a press conference by Chairman Jerome Powell. At the news conference, Powell is expected to highlight downside risks to the U.S. economy over the winter, said Win Thin, head of currency strategy at BBH in London. “The outlook has deteriorated since the November FOMC meeting,” he said. Infection rates are hitting record highs and show no signs of abating. A full recovery will be pushed further into next year, with the possibility of tighter restrictions. As Federal Reserve Chairman Powell has said countless times, there can be no sustainable economic recovery until the virus is contained.”
BBH also outlined some of the tools available to the U.S. central bank and indicated when the Fed would be able to implement them. “Adjustments to existing lending and liquidity programs in the United States are possible at any time, as well as macro forecasts in 2021, but adjustments to forward guidance and asset purchases are unlikely at this time,” the company said. Yield curve control is also unlikely now, and if long-term interest rates rise too high, it is unlikely in 2021 or beyond. As for negative interest rates, it’s very unlikely.”
With e-commerce booming, the impact of COVID-19 has put retailers under unprecedented pressure. “It’s really a hard place to make money because these transactions are done online,” Munger said. Munger, who is known for his investment prowess, expects stock market returns to be lower over the next 10 years than in the previous one. “The stock market mania is so great, but the management system and the reward system are so stupid,” he says.