-- Posted Wednesday, 24 September 2008 | Digg This Article
| Source: GoldSeek.com
By: Peter J. Cooper
You have to take you hat off to the world’s greatest investor. Old Warren Buffett has not lost his touch, taking a stake in Goldman Sachs while this incredibly astute bank’s share price is depressed by the American financial crisis. His $5 billion cash injection will cost 10 per cent a year for the next five years and he has an option to buy more stock at a discounted price later.
I suppose his reasoning is that Goldman would be the very last shoe to drop in any global crisis and so systemic risk is minimalized while the potential upside over the next decade should be huge. Would it be worth taking a punt alongside Buffett and buying now?
This most likely would work, even though Buffett’s arrival has already rallied the stock. If you go back over his other purchases in quoted companies over the past few years then following Warren has worked like a dream.
But you need to copy him exactly. Do not, for example, assume that all financial stocks are due for a rally just because Buffett has made a bet on Goldman’s future. And there could still well be another downleg in the whole US financial sector to come, and indeed a full on Wall Street Crash.
How much confidence do you have in this bail out package? I don’t like the look of it - an open ended commitment to buy up rubbish assets with public money. It stinks. It certainly looks bad for the US dollar and treasuries and highly inflationary.
Buffett may be able to cherry pick assets in this crisis but that does not mean it is over. Goldman Sachs is paying highly for his generosity - but this new capital brings the former investment bank under the capital limits for a commercial bank which it suddenly became this week.
Goldman has saved itself but everybody else should still run for cover. Incidentally Goldman removed its long-standing short position on gold last week - the should be a positive signal for the yellow metal which is gathering friends by the day.
I almost expect Warren Buffett to say shortly that he has been buying gold or silver, and silver is actually at the best bargain levels since the last time Buffett bought it and doubled his money. Will he suddenly emerge as a surprise buyer of silver? Well, history does tend to repeat itself.
Peter J. Cooper
http://arabianmoney.net/
-- Posted Wednesday, 24 September 2008 | Digg This Article | Source: GoldSeek.com
