There were more questions about the dams on Oregon"s Klamath River shutting off the salmon run for Indian tribes than the damming up of the credit markets.
The word "recession" was never mentioned. "Inflation" only once. No one asked about the $1.6 billion loss Berkshire took on a derivative position in the last quarter. Not a soul inquired about the decline in Berkshire"s earnings. Buffett"s brilliant call in buying Brazilian currency (the real) never got a nod, even though Standard & Poor"s raised that nation"s credit to investment grade last week.
Nor did anyone raise the provocative theme put forth in Buffett"s letter to shareholders (See "Croesus, Buffett: New Advice From On High") that investors should not expect to earn on their common stock positions the modest 5.3% rate of return earned during the whole of the 20th century. Were none of the 30,000 shareholders alert enough to take the opportunity to ask Buffett what rate of return they could expect? After all, many small investors count on their Berkshire holdings as an important stake and nest egg.
"Anyone who wants us to repeat the past should sell [his or her] stock," said the Oracle of Omaha, without any follow-up questions from alarmed shareholders. Be fairly warned.
This passivity cannot be due to Buffett"s willingness to appear on a certain cable network nine times and another one five times since October 2007. This was a chance blown to find out how Buffett and Munger weighed the risks in the world.
It was Buffett"s acerbic partner Charles Munger who finally exclaimed that "we are having convulsions that make Enron look like a tea party. We will have changes in regulation but they won"t work perfectly." No one asked Munger what changes he saw on the horizon. Later on the 84-year-old Los Angeles lawyer described the convulsion as "a huge dislocation that was very extreme but very brief. It"s interesting how brief these opportunities are."
Nevertheless, Berkshire was able to accumulate a $4 billion position in auction rate notes when that market froze up some weeks ago. It included the short-term debts of the nonprofit Los Angeles County Museum of Art at interest rates of 8% to 10%--triple the 3% to 4% the same notes sold for in January. Perhaps it was this opportunity that Munger chose to describe in his no-holds-barred style--"some idiot hedge fund bought municipal bonds on incredible margin. These things were disposed on a margin call," meaning that the fund had to sell because it didn"t have the capital to support its position.
After a lunch break, Buffett finally got in some licks at the regulator of Fannie Mae (nyse: FNM - news - people ) and Freddie Mac (nyse: FRE - news - people )--Office of Federal Housing Enterprise Oversight--for allowing accounting irregularities to go on for some time. Buffett, who describes himself as "the chief risk officer" of Berkshire, also slammed the large commercial and investment banks as both too big to manage and too big to fail, according to the government. He reckoned that the failure of Bear Stearns (nyse: BSC - news - people ) would have caused the failure of "another investment bank or two going down in a day or two."
The panic would have been caused by financial institutions "trying to undo $14.5 trillion [worth of] derivatives contracts in just hours, not days or weeks. Hardly anyone caught Buffett"s words when he muttered that "to some extent it"s an evil culture." The evil culture he was talking about was Wall Street, the commercial and investment banks who had no idea that their risk models were utterly useless. "They didn"t have the faintest idea what risks were involved," he said.
As for politics, Buffett, a Democrat, said all three candidates are intelligent. But he scoffed at the way both Clinton and Obama "ask for an excess profits tax on Exxon"--but not on the farmers getting rich off the boom in commodity prices. Munger added that "while we don"t like inflation because it"s bad for our country, we"ll probably make more money over time because there is inflation."
On oil prices, Buffett predicted that production will level off and then start to decline, which will tend to put a floor under the price of oil. His politically incorrect partner Munger declared that "in the 1930s [when oil was first discovered in the Middle East] we should have taken the oil out of the Middle East and put it in the ground" in the U.S. "Eventually," Munger predicted, "we"ll have to use the sun for our power."
On a lighter note, the high point of the meeting was a cartoon film that had Munger being elected president on the Financially Independent ticket--and naming Buffett secretary of commerce, secretary of the Treasury and chairman of the Federal Reserve all at once. In a serious vein, Buffett later said his inclination would be to raise taxes on the super-rich (himself included, of course) and lower them on the middle class, a position shared by both of the Democratic candidates.
As for the stock market, Buffett, made it crystal clear that "Charlie and I haven"t the faintest idea where [it"s] going."
More from Croesus in Omaha Sunday. Stay tuned. If you have any questions for Warren, send them along in the comments below.
