The Week Ahead: Euro Finance Ministers to Meet; Fed to Publish Meeting Minutes

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DealBook: Berkshire Hathaway’s 2013 Shareholder Meeting

We’re back from lunch, and Mr. Kass leads off with a question about whether Mr. Buffett’s intensity has waned over the years. He specifically cites the weeks of work that Berkshire put into research American Express at the time of its first investment, versus the quick decision-making that went into its move into Bank of America. (Mr. Buffett famously hit upon the latter idea while in the bathtub.)

“Are you at the point now where the game interests you more than the score?” Mr. Kass asks.

Mr. Buffett responds that he still finds running Berkshire the most interesting thing he could possibly do.

“I have every bit of the intensity, though it’s not manifested in the same way,” he says. “I love thinking about Berkshire, about its investments, about its businesses. It’s a part of me.”

Mr. Munger interjects that Berkshire needed to do an enormous amount of analysis for its first investment in American Express, since the company was unfamiliar at the time. When it made a subsequent investment, Mr. Buffett had already amassed a wealth of knowledge.

“It was all cumulative,” Mr. Munger said.

Responding to a later question, Mr. Buffett comes back to the Bank of America decision. “The bathtub wasn’t the most important part,” he jokes.

DealBook: Buffett Picks Douglas Kass as His 'Bear' for Annual Meeting

John Van Beekum for The New York TimesDouglas Kass, the founder of hedge fund Seabreeze Partners Management.

Warren E. Buffett has found his bear.

In his annual letter to shareholders, published on Friday, Mr. Buffett said that he wanted to “spice things up” by finding a money manager with an unfavorable view of Berkshire Hathaway to participate in the company’s annual meeting.

“The only requirement is that you be an investment professional and negative on Berkshire,” he wrote.

On Monday, Mr. Buffett said Douglas A. Kass, a hedge fund manager who has shorted Berkshire stock and thus bet that its price will fall, would be added to the panel of analysts at the company’s yearly gathering on May 4. He will be among those who question Mr. Buffett and Berkshire’s vice chairman, Charles T. Munger, on stage, when more than 18,000 devotees are expected to descend on Omaha for the three-day meeting, often described as the Woodstock for capitalists.

Mr. Kass, the owner of Seabreeze Partners Management in Palm Beach, Fla., is a well-known stock picker by virtue of his writings for a financial Web site, TheStreet.com, and frequent appearances on CNBC.

“I am going to Disneyland — I mean, Omaha!” Mr. Kass, 63, wrote on TheStreet.com. “I will be Daniel in the Lion’s Den, wading in a sea of Warren Buffett’s strongest admirers.”

Mr. Buffett, famous for his swift decision-making when it comes to closing deals and buying stocks, wasted no time in picking his “Berkshire bear.” But also credit Mr. Kass for taking the bull by the horns, so to speak.

Mr. Kass said he had read the Berkshire letter as soon as it came out on Friday, just as he had done each of the last 40 years. After seeing Mr. Buffett’s solicitation, he began preparing a proposal. Mr. Kass has credentials as a Berkshire bear, having written a piece in March 2008 for TheStreet.com, “Kass Katch: 11 Reasons to Short Berkshire” that laid out his rationale for betting against the company. (Berkshire’s stock is up about 16 percent since Mr. Kass wrote the column, but it did have down years in 2008 and 2011).

“I have worshiped at the altar of Warren Buffett since the late 1970s,” Mr. Kass wrote. “Indeed my writings over the last seven years have often been punctuated with Buffett-isms.”

Yet Mr. Kass said that despite his idolatry of Mr. Buffett, 82, the Berkshire business faced a number of headwinds. He cited Mr. Buffett’s advanced age, explaining that “there will never be another Warren Buffett.” He also said that Berkshire’s large size could impede returns, pointing out that even Mr. Buffett had written that the company’s asset base was too large to make outsize gains in the future. Both criticisms are even more potent today than they were a half-decade ago.

While Berkshire’s book value — Mr. Buffett’s preferred performance metric — has soundly outperformed the broader stock market over its 48-year history, the Standard & Poor’s 500-stock index has outperformed Berkshire in three of the last four years and five of the last 10.

So on Saturday, while watching the Kansas-West Virginia college basketball game, Mr. Kass completed his application. He included his bearish article on Berkshire from The Street, as well as a presentation he gave last year at a value-investing conference, in which he advocated shorting the United States bond market.

He also included his résumé, which highlighted that he began his career as a housing analyst at the investment bank Kidder Peabody and later worked for the billionaire investor Leon Cooperman, who runs the hedge fund Omega Advisors.

Mr. Kass, who said he had never met Mr. Buffett, also supplied him with a list of references of other prominent investors who know Mr. Buffett, including Howard Marks, the chairman of Oaktree Capital Management, and Mario Gabelli, the chief of Gamco Investors.

On Monday morning, in a live CNBC interview, Mr. Buffett made the surprise announcement that he had selected Mr. Kass.

“Think of tough questions,” Mr. Buffett challenged Mr. Kass on the air. “See if you can drive the stock down 10 percent.”

Mr. Kass was in his Palm Beach office, preparing for the trading day with CNBC playing in the background, and he heard Mr. Buffett make the announcement.

“I was as shocked as everyone else,” said Mr. Kass, who grew up in Rockville Centre, N.Y., on Long Island. “I am flattered, honored and surprised.”

He will join two Berkshire bulls, the insurance analyst Cliff Gallant of Nomura Securities and Jonathan Brandt of the money management firm Ruane, Cunniff & Goldfarb, on stage at the CenturyLink Center in Omaha in two months.

And even though Mr. Kass will be the stick in the mud at the celebratory weekend event, he acknowledges that deep down, he remains an unabashed fan of Mr. Buffett.

“I can’t wait to take a picture with him,” Mr. Kass said.

This post has been revised to reflect the following correction:

Correction: March 4, 2013

An earlier version of this article misstated Doug Kass's investment position in Berkshire Hathaway. He is shorting the stock; it is not the case that he was "not currently" short the company's shares.

At White House Budget Meeting, Old Hurdles and New Attitude

Both sides indicated after the 70-minute White House meeting that their goal is a two-step compromise, since they have little time to work before the end of the year. That is when more than $500 billion in automatic tax increases and across-the-board spending cuts hit all Americans, and potentially shake the economy, unless Congress enacts an alternative deficit reduction agreement.

As tentatively envisioned, a compromise would provide an immediate down payment of at least $50 billion to reduce this year’s projected deficit, in lieu of the automatic measures that would hurt the economy by their size and suddenness, economists say. Second, it would define a framework for negotiating a long-term “grand bargain” in 2013 to shave annual deficits by perhaps $4 trillion over the first decade.

The framework would have separate goals for raising revenues and cutting the two types of federal spending: so-called discretionary financing that Congress sets annually for most programs, domestic and military; and entitlement spending, chiefly for Medicare and Medicaid, which by their growth in an aging population are driving projections of mounting debt.

The agreement to aim for a framework only in the initial talks is a quick step forward. Some lawmakers, including the Senate Republican leader, Mitch McConnell of Kentucky, had wanted a larger deal before Jan. 1 as the price for shutting off the automatic deficit reduction that would hit then. Representative Nancy Pelosi of California, the House Democratic leader, went so far as to predict that a deal to head off that so-called fiscal cliff would be at hand “well before Christmas.”

While such a two-pronged deal would put off the hardest and most far-reaching policy decisions until next year, no deal is possible unless the negotiators first decide on the deficit down payment. That installment, it is widely believed, must be large enough to satisfy financial markets, which oppose the automatic measures as too large and threatening but still want Washington to show some resolve toward getting the nation’s fiscal house in order.

Mr. Obama, Vice President Joseph R. Biden Jr. and the Democrats — Harry Reid of Nevada, the Senate majority leader, and Ms. Pelosi — made it clear around the negotiating table that the down payment is easily made by letting the Bush tax cuts expire, as scheduled on Dec. 31, for annual income of $250,000 and above for couples and $200,000 for individuals. The Bush rates would be extended for lower incomes, preserving them for 98 percent of taxpayers.

The Republicans — House Speaker John A. Boehner and Mr. McConnell — were just as plain that, while they support raising additional revenues by curbing deductions and through economic growth, they would oppose an increase in marginal tax rates. They want the down payment in spending cuts.

Yet after an election campaign in which Mr. Obama made this a top issue, Republicans have reduced leverage, many acknowledge. That shift in the Washington fiscal dynamic since Mr. Obama’s re-election also explains the rapidity with which the Republican leaders have agreed that higher revenues will be part of the deficit-reduction solution — if not through higher rates.

If the president has his way, the top rates, now 33 percent and 35 percent, would rise to 36 percent and 39.6 percent, the Clinton-era levels, on Jan. 1. But Mr. Obama has suggested he is open to a compromise that would set the rates somewhere in between, in combination with limits on deductions.

With Mr. Obama leaving on Saturday for a four-day diplomatic trip to Asia and Thanksgiving looming, the negotiators directed their staffs to flush out the Republican bottom line on the size and type of savings to get from Medicare and Medicaid in preparation for the leaders’ next meeting in the week after the holiday.

Republicans were heartened that Mr. Obama designated his soon-to-retire Treasury secretary, Timothy F. Geithner, as his lead negotiator, instead of the White House chief of staff, Jacob J. Lew. Mr. Boehner’s relations with Mr. Lew soured during the prolonged and bitter budget talks in 2011.

Transcript of ’44 Bretton Woods Meeting Found at Treasury

Historians had never known that a transcript existed for the event held in the heat of World War II, when delegates from 44 allied nations fighting Hitler gathered in the mountains of New Hampshire to create the International Monetary Fund and the World Bank. But there were three copies in archives and libraries around Washington that had never been made public, until now.

“It’s as if someone handed us Madison’s notes on the debate over the Constitution,” said Eric Rauchway, a historian the University of California, Davis.

Economic historians who have viewed the transcript say it adds color and detail to the historical record, an already thick one given the many contemporaneous and subsequent accounts of Bretton Woods. The transcript seems to contain no great surprises, but it sheds light on the intense debates as the war raged abroad.

It depicts John Maynard Keynes, the British economist, hurrying to marshal support for the broad agreements on international finance. It underscores the tremendous power then wielded by Britain and, especially, the United States. It also shows the seeds of contemporary disputes being sown.

For instance, seven decades ago, a number of poorer or smaller countries were protesting their International Monetary Fund quotas, which determine power in the fund. Many of those countries, including China and India, are still pushing for more influence today.

In one section of the transcript, an American representative lays out a proposal for apportioning power in the fund and underscores what was at stake, with the war coming to its bloody climax in Europe.

“We fight together on sodden battlefields. We sail together on the majestic blue. We fly together in the ethereal sky,” said Fred M. Vinson, who later became chief justice of the United States. “The test of this conference is whether we can walk together, solve our economic problems, down the road to peace as we today march to victory.”

But the response was not one of absolute unity.

“In spite of the very eloquent and moving speech of the United States delegate, on behalf of the Iranian delegation I wish to state that the quota proposed for my country is entirely unsatisfactory,” a delegate from Tehran responded.

Then, a delegate from China added: “I hesitate greatly to sound a note of discord at this conference. It has been the effort of the Chinese delegation to promote harmony and the success of this great common enterprise. But every delegation has its difficulties.”

The Netherlands, Greece, Australia, India, Yugoslavia, New Zealand, France, Ethiopia, Norway and Britain then added their comments and objections. “I think that a lot of people have thought of Bretton Woods as being a stitch-up job between United Kingdom and the United States,” Mr. Rauchway said. “But that’s overstated, and it’s definitely visible in this transcript. You can see the poorer countries fighting their own corner.”

Kurt Schuler a Treasury Department economist, was browsing in an “out of the way” section of uncataloged material in the library two years ago when he came across the Bretton Woods document. He flipped through and saw some remarks by Keynes that he was not familiar with, sort of the economists’ equivalent of a Bob Dylan fan finding unknown lyrics.

“I checked them against Keynes’s collected works,” Mr. Schuler said. “And I knew I had something.”

His research revealed that there were three copies of the transcript that scores of economic historians were not aware of: the version at the Treasury Department; one in the National Archives; and the third in the International Monetary Fund archives.

In his spare time, Mr. Schuler set about turning the yellowed transcript into a book, with a co-editor, Andrew Rosenberg. It took a tremendous amount of work, Mr. Schuler said. They read the transcript aloud into transcription software. They added hyperlinks to documents referenced at the conference, and wrote summaries, annotations and historical notes.

This week, the polished transcript was published as an 800-page e-book by the Center for Financial Stability, a nonprofit group based in New York that researches financial markets, where Mr. Schuler is a senior fellow and Mr. Rosenberg a research associate.

“Everyone thinks they know what happened at Bretton Woods, but what they know has been filtered by generations of historical accounts,” Barry Eichengreen, a professor or economics and political science at the University of California, Berkeley, said in a statement. “International monetary history will never be the same.”

The transcript provides “insight in how it was that they were able to maintain a pace of work which allowed them to reach two really big agreements, on the I.M.F. and the World Bank, within a space of three weeks,” Mr. Schuler said. “Keynes was something of a task master,” he added.

Benn Steil, a senior fellow and director of international economics at the Council on Foreign Relations, said readers can see the British Empire “disintegrating before your eyes,” in the transcript. “The Indians are so vociferous that the British are ripping them off. The British are both furious and mortified that their colony would do this to them,” he said, describing a dispute over debts with the colonies.

“Bretton Woods was itself 95 percent Kabuki theater,” he said. “But it’s interesting Kabuki theater.”