It’s Warren Buffett to the rescue!  Markets around the globe were getting crushed last night and early this morning.  The dollar was surging and there was bad news on some big banks. UBS said losses were growing, and RBS and Lloyd’s had to go back for another helping of government support.  Most markets were down between 2-3%, and that looked like where the U.S. would open.

Buffett to the rescue

Enter Warren Buffett.  He announced that Berkshire Hathaway would buy the 77% of Burlington Northern Railroad it doesn’t already own and pay a big premium.  The total cash will be $34 billion plus the assumption of $10 billion in debt.  This is Buffett’s biggest-ever single play.  He termed it an “all-in” bet on the U.S. economy.  Few people will argue against Buffett, though even he would admit his share of mistakes.  His biggest sin has been that he has often been early on making moves.  But, he has rarely been wrong over the long-term. I’m hoping the early-but-not-wrong pattern holds.

The irony of this whole story is that if Warren is correct and the U.S. economy rebounds soon, rates will go up.  If rates go up, the dollar will follow.  If the dollar starts moving higher, the global carry trades will implode.  If global carry trades are forced to be unwound, the stock market will tumble.  Implosion of global carry trades means that global speculators will have to sell currencies and buy dollars to repay borrowing in dollars they took out here at near 0%.  For the past couple of months I’ve written about the danger of asset bubbles.   Frankly, I would like to think this is starting now.  I would rather see these carry trades forced to unwind now as opposed to later — when the damage could be much greater.

So, you can thank Warren for saving the market today if you wish.  But you should really thank stock traders for being so dumb they don’t even understand what Warren’s actions really mean.