What went on last week:
1. Warren Buffett hosted Woodstock.
Berkshire-Hathaway had its annual shareholders meeting last week. The big areas of interest:
- Why Berkshire-Hathaway abstained from a shareholder vote on equity executive compensation at Coca-Cola after calling the proposal “excessive” (Response: “We made a very clear statement about the excessiveness of the plan and, at the same time, we in no way went to war with Coca-Cola. I don’t think going to war is a very good idea in most situations.”) and
- Moral Hazard in the banking sector. (Charlie Munger’s response: “I don’t think there’s anything that changes behaviour more than prosecuting individuals”. Warren Buffett’s: “It’s way easier to prosecute corporations – it’s somebody else’s money, and the prosecution knows it’s going to get a win. Their calculus is such that it just doesn’t make sense to fight if you can just write a check, while the individual is fighting to stay out of jail.”)
The Fed will drop its asset repurchase program by another $10 billion this month. It’s almost non-news – because the foreign currency markets are completely non-reactive.
3. Australia to raise its retirement age.
Australia’s Treasurer says that he plans to try and raised Australia’s retirement age to 70 by the year 2035. I think it’s interesting partly because it follows on from last week’s post about ageing populations (The Crisis of Ageing), but also because the politics are such an interesting perspective in incentives.
If the retirement age were elevated today (from 65 to 70), everyone under the age of 70 would lose out (that is: everyone between the age of 18 and 70). So that would be an instant vote fail.
But if you make the date for the change 2035, that’s 21 years away – so it will only impact people that are currently under the age of 50. It will also impact people that are currently under the age of 18 now, as well as three future years of children yet-to-be-born – but despite being affected by the law, they’re not going to be able to vote for it today (or, rather, to vote for the party that opposes it), because they’re not yet of legal age.
And the other thing it does is take advantage of that human trait of being far more rational about future losses than about current ones (for more, read this post: The Psychology of Savings).
4. Venezuela stops its pasta production.
Venezuela’s largest private company, Empresas Polar, is not getting its foreign currency out of Victor Maduro’s government, and therefore can’t import wheat, so there’s no more pasta production. Pasta is a staple food in Venezuela (Venezuela is the second-highest consumer of pasta in the world, after Italy).
The silver lining here: don’t underestimate human resilience. We panic about economic downturns, etc – but the fact is, you can take away basic staple foods, savings, security and reliable power supply (all of which Victor Maduro has done), and yet still, people continue to survive.
It’s a bitter silver lining. But silver, nonetheless.
For more on the Venezuelan hyperinflation (although there is debate around whether Venezuela is actually in an hyperinflationary episode, or just approaching one), here are two articles that I thought were interesting:
- Venezuela’s House of Cards, from the CATO Institute blog
- Venezuela hit by fears of hyperinflation, from the FT.