Billionaire investor Warren E. Buffett, the Oracle of Omaha, may yet have something he can teach the public, politicians and policymakers about the economy.
Admittedly, he's had a pretty good run. He is 80 now and rich enough to help start a pledge drive in which his "mega-rich" friends agree to put much of their money into charitable causes when they die. He is rich enough to write an editorial saying that while the country was in trouble, increasing his taxes would be OK with him. Whoops, there goes a couple of million. How rich do you have to be to do that?
This is not a pity party. The point is, Mr. Buffett knows, from his own angle, how to manage the economy to go his way. Can they actually say that at the U.S. Federal Reserve?
Here is one lesson Mr. Buffett has freely shared for many years: His investment strategy is always long-term. On Thursday, he put $5 billion into struggling financial behemoth Bank of America and it is pretty clear he isn't expecting to make money on that bet by the end of the week. You don't play games with $5 billion -- even Mr. Buffett doesn't do that.
So, the bet is this: Bank of America will be around for a while and, given its size, that's a pretty good bet. After all, its portfolio is larger than the one held by many governments.
In Jackson Hole, Wyo., this week, the theme of the Fed's annual retreat, which has caught the attention of investors from every corner, is "Achieving Maximum Long-Run Economic Growth."
Here's Mr. Buffett's plan: Buy a big chunk of Bank of America and sit back and let time do what it does. He doesn't really meddle much. "Long-run economic growth," takes a Buffett-sized portion of patience. He is a very patient man.
Secondly, Mr. Buffett's purchase is already self-fulfilling. If he has the confidence to invest $5 billion in a company, then investors from hither and yon do, too, and, sure enough, BofA stock rose 9.44 percent Thursday just on the rising tide of confidence sparked by one of the world's richest bridge players.
So, here's the next lesson: There is empirical proof as of today that it takes $5 billion to raise the share value of one company for one given day roughly 10 percent.
It is simple math after that. About 2,500 companies are listed on the New York Stock Exchange. How much would it take, variations in size notwithstanding, to give them all a 10 percent boost?
That is the size of the dilemma Fed Chairman Ben Bernanke faced in a speech scheduled in Wyoming Friday. That plus an unemployment rate of 9.1 percent, which means he is already well behind the starting line.
He was expected to choose not to meddle, to have the Fed sit back and watch for a while longer. A phone call to Mr. Buffett would confirm that kind of inaction is exactly right. Inaction is a vote of confidence, after all -- in the sense that panic is not.
Last year, at the annual retreat, Bernanke announced a $600 billion quantitative easing program. The idea was, roughly speaking, to lift 2,500 companies 10 percent for not just one day but for the long-run.
In other words, simple as these equations might be, the program known as QE2 had the power to move 120 Bank of America-sized companies 10 percent higher.
The definition of a calorie: The amount of energy it takes to raise the temperature of 1 gram of water 1 degree Celsius. In economics, there should be a Warren Buffett calorie: The amount of money it takes to move one company 1 percent higher on the stock market.
And that, of course, is just one way to measure the mess out there. If the entire stock market moved up 9.44 percent in just one day, in theory at least, there would be a few new job listings posted right away.
In international markets Friday, the Nikkei 225 index in Japan gained 0.29 percent and the Shanghai composite index in China fell 0.12 percent. The Hang Seng index in Hong Kong lost 0.86 percent and the Sensex in India dropped 1.84 percent.
The S&P/ASX 200 index in Australia slipped 0.3 percent.
In midday trading in Europe, the FTSE 100 index shed 1.41 percent while the DAX 30 in Germany plunged 3.19 percent. The CAC 40 in France lost 2.87 percent and the Stoxx Europe 600 dropped 2.16 percent.
