Thursday, November 5, 2009

Niall Ferguson on Charlie Rose

I found the Charlie Rose interview with Niall Ferguson pretty interesting (VIDEO 11/3/2009). In it, Ferguson says that he thinks Mr. Buffett is making a mistake buying Burlington Northern. The statement "This is a moment in history when the things that have been true for his entire life may have ceased to be true" is especially interesting to me because it is similar to the answer Whitney Tilson gave during one of his presentations when I asked him about his thoughts on Jim Grant's bullish tilt over the last couple of months. Mr. Tilson said he really respects and admires Mr. Grant and enjoys his newsletter, but that he thinks Jim Grant is using history in way that doesn't yield a true comparison this time - similar to the way Bill Miller and Marty Whitman's metrics for buying financial company stocks weren't valid this time around. Mr. Tilson added that he thinks this time really is different. Here's the Ferguson excerpt mentioning Buffett and Burlington Northern:

CHARLIE ROSE: Warren Buffett as we speak today made a huge multibillion dollar, $30 billion to $40 billion investment, in railways, saying, "This is my confidence in the American economy."

NIALL FERGUSON: Well, good luck to him.

CHARLIE ROSE: Well, he knows something about economies and investments, doesn’t he?

NIALL FERGUSON: Oh, sure, and his track record has been very impressive until so very recently. And it’s been less so.

CHARLIE ROSE: It was less so last year, but it’s come back.

NIALL FERGUSON: So it’s possible that he’s right and I’m wrong, I don’t rule that out, and that all is going to be well and the U.S. is going to bounce back.

CHARLIE ROSE: Are you prepared to say, "It’s either Buffett or me" in terms of analysis?

NIALL FERGUSON: I’m happy to bet with him, although I probably can’t put down quite as much money as he can in his bet. I’m a humble academic.

But it does seem to me a better bet would be to put money on not just China but actually China’s trading partners. I would rather buy Australian railroads than American railroads because I know that stuff is being shipped from Australia to China in much larger quantities than is currently being shipped coast to coast in the United States.

I mean, actually, freight traffic on U.S. railroads is at an extraordinarily low level right now with very little sign of improvement. So he’s a very optimistic man, I would say.

CHARLIE ROSE: And you think he’s making a serious mistake.

NIALL FERGUSON: I do, because I don’t see that the United States can grow at rates rapid enough to make that investment pay cheap, though the price may be.

Now, of course, it’s reckless of me to take on Warren Buffett. But you know what?


NIALL FERGUSON: This is a moment in history when the things that have been true for his entire life may have ceased to be true.

The biggest problem that anybody faces today is that their lifetime experience -- even if their life as long as Warren Buffett’s -- is no longer a reliable guide to the future. Why? Because we just missed a great depression by a hair’s breadth, and we missed it by throwing a vast quantity of money at the U.S. economy, by running a deficit as large as we ran in World War II in peacetime.

Nobody knows whether that will create unintended consequences that will slow the economy down. My instinct is that it will.