Again Jim Cramer & Rich Bernstein Will Be Proved Right and Warren Buffett Wrong

Editor’s Note: This is an article about comments made on financial television and financial media in general. It is not an investment article and no one should base any investing decisions or conclusions based on anything written in or inferred from this article. Investing is a serious matter and all investment decisions that should only be taken after a detailed discussion with your investment advisor and should be subject to your objectives, suitability requirements and risk tolerances. .

On Monday, October 7, 2008, Jim Cramer surprised his viewers with his recommendation to take money OUT of the stock market if they needed it during the next 5 years. Ten days later Warren Buffet, heralded as the greatest investor in the world, wrote an opinion in the New York Times advocating buying American stocks. This must have come as a body blow to Jim Cramer. Here was the most admired investor in America asking Americans to begin buying stocks when Jim Cramer had just advised Americans to take their money out of the stock market. The “Power Lunch” show on his own CNBC network hyped the Buffett letter and made it the cornerstone of its campaign to urge its viewers to buy stocks. Kudos to Jim Cramer for staying true to his convictions.

Rich Bernstein of Merrill Lynch has been prescient in advising investors to underweight stocks long before Warren Buffett wrote that opinion in the New York Times. Mr. Bernstein remained true to his own convictions and steadfastly bearish despite the pressure from investors and from the Merrill Lynch retail brokerage force.

The Dow Jones Average has declined from around 11,000 (when Mr. Buffet wrote his opinion) to just above 6600 on Friday, March 6, 2009, a loss of about 40%. So, in this case, Jim Cramer and Rich Bernstein were right and Warren Buffet wrong. 

We have written a series of articles on this blog about US Treasuries, the most recent being our article* on January 9, 2009. In this article, we laid out our case that US Treasuries were not in a bubble in December 2008.
So imagine our discomfort on Monday, March 2, 2009, when Warren Buffet wrote in his annual letter “When the financial history of this decade is written, it will surely speak of the Internet bubble of the late 1990s and the housing bubble of the early 2000s. But the U.S. Treasury bond bubble of late 2008 may be regarded as almost equally extraordinary.”

Not only did the greatest investor of our time say that Treasuries were in a bubble in December 2008 but that the Treasury Bubble may be regarded as crazy as the Internet and Housing Bubbles. CNBC’s Power Lunch, as usual, hyped this proclamation and Michelle Caruso-Cabrera paraded it during Power Lunch and during the evening Kudlow Report.

We remain steadfast in our opinion. But we were curious to see what Jim Cramer and Rich Bernstein would say about this new opinion from Warren Buffett. We did not have to wait long.

On the same day, Erin Burnett asked Jim Cramer in their daily conversation “Jim,  what about Treasuries?”

Jim Cramer replied “There was a big bubble in Treasuries in 1932 which lasted a long time, until 1937-38. I can tell you that the Chinese own a lot of treasuries and that was really a great investment and it remains a great investment”. He added,“Think about Zero Coupon Bonds & what a better performer they have been than the S&P 500 since 1982 & you get a sense that bull markets in Treasuries can last longer than people realize”. (See this clip at

We were relieved to hear this, especially we had extolled the virtues of Zero Coupon Treasuries in our original article** on August 23, 2008.

Now we wanted to know what Rich Bernstein would say. Again we did not have to wait long. A reader sent us Mr. Bernstein’s views that were published on March 3, 2009, a day after the Buffet opinion. Mr. Bernstein took a dim view of the current consensus that corporate bonds are a much better investment than US Treasuries. Mr. Bernstein said, “We find it odd that consensus shifted to investment grade bonds (essentially a move down in quality from Treasuries) at the exact time that corporate cash flows were deteriorating at a record pace. It seems to us that the risks are rising that high-grade bonds are downgraded.”

We find the paragraph in Mr. Buffett’s letter, just before his treasury bubble comment, revealing. It reads, A few years ago, it would have seemed unthinkable (emphasis ours) that yields like today’s could have been obtained on good-grade municipal or corporate bonds even while risk-free governments offered near-zero returns on short-term bonds and no better than a pittance on long-terms.”

We would point out that a few years ago represented a totally different era. After all, a few years ago, it would have seemed unthinkable,

  • that the S&P 500 would suffer a decline of over 55%,
  • that all Global Markets would suffer brutal declines in a synchronized manner,
  • that stock prices of the large US banks would crater to single digits,
  • that US economy would be in the free fall that it seems to be in,
  • that S&P 500 earnings would be negative for the first time in the index’s history. 

Today is not a few years ago and in today’s world of deflation or deep recession, the only safe ground is in the US Dollar and in US Treasuries.

We point out to readers that, a few years ago, Mr. Warren Buffett told his readers that the US Dollar was destined to fall a great deal in value and that he had established a large, short US Dollar position. Unfortunately Mr. Buffett’s analysis was not shared by the currency markets and, reportedly, Mr. Buffett had to close this position at a significant loss.

Mr. Doug Kass of Seebreeze Partners said on CNBC’s Kudlow Report that many of Mr. Buffett’s stocks have cratered in 2009 resulting in a $18 billion loss so far in 2009. (see this clip at ). CNBC’s Fast Money pointed out on Friday, March 6, 2009, that the price of credit default swaps (cost of protection against default) on Mr. Buffett’s Berkshire Hathaway have risen above that of the emerging market of Vietnam. 

A few years ago it would have seemed unthinkable that Mr. Buffett, the most admired investor in America, would suffer this fate. This is not to cast aspersions on Mr. Buffett but to simply remind readers that markets have a way of humbling the best investors in the world.

The lesson for investors is to speak often and in detail with their own investment advisors, read as much expert opinion as they can find and finally come to their own conclusions.

As far as we are concerned, our views on US Treasuries remain steadfast despite Mr. Buffett’s opinion. Our conclusion in our January 9, 2009 article was “The bottom line is US Treasuries are nowhere as cheap as they were in 2007 or when we began writing in August 2008. But, US Treasuries are NOT in a bubble.” We stand by what we said. 

* See our article “CNBC & US Treasuries – More Things Change, More They Stay the Same” – January 9, 2009 ––more-things-change-more-they-stay-the-same.aspx

** See our article “Are CNBC Anchors on a Mission Against US Treasuries? – A Viewer’s Perpsectives” – August 23, 2009 ––a-viewers-perpsectives.aspx

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