Low Noon: Price Crash at Warren’s Charity Lunch

10. June 2013 by Joachim Goldberg

Buffett

Poor Warren Buffett (that sounded odd); the bidding on eBay for a place at his annual charity lunch table was so tame the auction was ‘won’ for only one million dollars. Compare that to the bidding wars of the previous two years: in 2011 a lunch with the Oracle of Omaha cost the winner $2.63 million; and the entry ticket to his table at New York’s Smith & Wollensky steakhouse went for $3.46 million. So this year’s lunch was a veritable bargain. Alternatively, one could see it as a price crash of 70 percent.

It is a little worrying that the world’s wealthy decided to spurn Warren’s charitable intentions in this way. Even if the goal of the bidders might not be totally selfless, they could still have spent a little more. This is, after all, the chance to grill an investing legend while the chef does the same to a juicy T-bone: a rare opportunity indeed (or, at least medium-rare). What’s more, according to Reuters, Buffett’s lunch partner last year was served an unexpected dessert: a top job as an investment manager at Berkshire Hathaway. Perhaps, this time around, they were more anxious about overpaying for lunch and suffering the winners’ curse.

On the very same day I learned about the lunch auction, I read about the annual report of the Federal Reserve Bank of St Louis. According to the Fed statisticians 62 percent of the recovery of private wealth up to the end of last year was due to rising stock prices. Given that, in 2010, 91.4 percent of stocks and stock funds were owned by the wealthiest decile in the population, the riches rebound certainly resulted in an even greater concentration of wealth in society.  This news didn’t surprise me because this trend towards greater wealth inequality had been in place for the past 30 years. However, the must-read study by Edward Wolff, revealed that the financial crisis might have even reinforced inequality in US society. It reports that real median wealth has actually sunk to the lowest levels since 1969.The gap between median incomes and top incomes has also widened in recent years. So it seems that the wealthiest households have disproportionally profited from the Fed-fuelled recovery in stock prices. The most recent US payrolls number merely confirms the development: more than a half of the new jobs created in May were in sectors where the pay is the lowest.

So it is somewhat puzzling why the wealthy are unwilling to spend more on a charity lunch with Warren Buffett – they can certainly afford to pay. Are the wealthy trying to cut costs? Or have they decided that they can do without any investment advice because, in anticipation of another huge stock market decline, they are already resigned not to make any new stock purchases.

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vposted on 10. June 2013 at 1:29 pm

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