Advertise | Bookmark | Contact Us | E-Mail List |  | Update Page | UraniumSeek.com 

Commentary : Gold Review : Markets : News Wire : Quotes : Silver : Stocks - Main Page 

 GoldSeek.com >> News >> Story  Disclaimer 
 
Latest Headlines

Gold Seeker Weekly Wrap-Up: Gold and Silver Gain Over 1% and 2% on the Week
By: Chris Mullen, Gold Seeker Report

Ira Epstein's Metals Video 11 17 2017
By: Ira Epstein

Next-Generation Crazy: The Fed Plans For The Coming Recession
By: John Rubino

COT Gold, Silver and US Dollar Index Report - November 17, 2017
By: GoldSeek.com

Gold Miners’ Q3’17 Fundamentals
By: Adam Hamilton, CPA

Bonfire of the Absurdities
By: John Mauldin

The Social Security Inflation Lag Calendar - Partial Indexing Part 1
By: Daniel R. Amerman, CFA

Rob From The Middle Class Economics
By: Gary Christenson

GoldSeek Radio Nugget: John Williams and Chris Waltzek
By: radio.GoldSeek.com

The Metals Market Is A Mess And Will Likely Continue To Frustrate You
By: Avi Gilburt

 
Search

GoldSeek Web

 
Buffett Sees Market Crash Coming? His Cash Speaks Louder Than Words


 -- Published: Monday, 21 August 2017 | Print  | Disqus 

The Sage of Omaha’s adage is “it’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”


Editor: Mark O’Byrne

But for Warren Buffett the current environment doesn’t appear to be offering up any wonderful companies at fair valuations. The situation is so bad that the cash stockpile of Berkshire Hathaway has more than doubled in the last four years, from under $40 billion to $100bn.

The infamous investor is famed for his investment approach of pouncing on companies when they run in to problems and are seemingly undervalued. At the moment though, there aren’t many out there.

The large stockpile is a likely indicator of not only how Buffett negatively views the current market environment but also how he sees the near future and what opportunities it will bring.

Buffett hates cash, he wants to spend it

Buffett has previously stated how much he hates cash, telling investors at the Berkshire AGM that it was a poor way to keep their money.

During the Omaha-based meeting Buffett expressed his frustration with a cash pile that is approaching $100 billion, “We shouldn’t use your money that way for long periods…The question is, ‘Are we going to be able to deploy it?’”

It may well be the case that Buffett is prepared to pay a dividend, stating that dividends could be paid “reasonably soon, even while I am around.” But this is unlikely.

Buffett is known for his dislike of paying dividends. Since he took over Berkshire over half a century ago the company has paid a single $0.10 dividend in 1967. Instead, shareholders have been rewarded with value through investments that have increased the company’s earning power.

Given the company’s track record of generating more than twice the S&P 500’s annualized returns over the past half-century, it’s more likely that Buffet is looking for an attractive acquisition or investment opportunity rather than pay dividends.

Making investments is all very easy when there are good value ones to be picked up but right now there are none.

Buffett can see this and his lack of investment suggests he sees opportunities on the horizon. These can only come about in the event of a market crash or a sharp market correction.

Bargains are tough to find 

The last major acquisition by Berkshire Hathaway was the $32 billion purchase of Precision Castparts. For Berkshire Hathaway’s Vice Chairman Charlie Munger this wasn’t the kind of deal that they were used to stating, “this is no screaming bargain like the old days.”

Munger was referring to the growing issue that it is difficult for the company to find bargains worthy of investment, in the current environment.

Warren Buffett has previously shown patience when it comes to looking for the right deals. Right now he likely views the market as overvalued with a greater chance of an imminent downturn as opposed to continued growth in valuations.

This isn’t an isolated view. Other investors of note have expressed concern that the market is currently over-valued.

Lord Rothschild, Chairman of RIT Capital Partners, wrote in the latest report about his concerns regarding current equity valuations:

‘Share prices have in many cases risen to unprecedented levels at a time when economic growth is by no means assured. The S&P is selling at 25 times trailing 12 months’ earnings, compared to a long-term average of 15, while the adjusted Shiller price earnings ratio, which averages profits over 10 years, is approximately 30 times.’

This situation, states Rothschild, is unsustainable.

“The period of monetary accommodation may well be coming to an end. Geopolitical problems remain widespread and are proving increasingly difficult to resolve.”

Other investors have also issued warnings that frothy valuations are a sign of a worsening financial environment.

Howard Marks of Oaktree Capital recently warned investors of a ‘too bullish territory’ and wrote that investors are ‘engaging in willing risk-taking, funding risky deals and creating risky market conditions.’

Those risky market conditions will form an environment which Buffett thrives in when it comes to making investment decisions.

As Jim Rickards explained when covering Berkshire’s latest revelation regarding cash holdings for Strategic Intelligence:

“What this tells us is that Buffett believes stock market valuations are rich (otherwise he’d be using the cash to buy companies), and that he wants a deep pool of liquidity so he can play the white knight in a coming panic.”

Buffett, along with other notable investors, foresees a sharp correction or a stock market crash. He will not be rushed into a buying a company which is currently overvalued because he knows there will be plenty of opportunities once the bubble bursts.

Threat to security 

The problem Buffett has in the meantime is keeping his cash safe.

In recent years Buffett has become increasingly vocal about his concerns regarding cyber-terrorism.

Earlier this year he told shareholders, “I’m very pessimistic on weapons of mass destruction generally although I don’t think that nuclear probably is quite as likely as either primarily biological and maybe cyber…I don’t know that much about cyber, but I do think that’s the number one problem with mankind”

The problem with the ‘cash’ that Buffett is holding is that is literally numbers on a screen. It can be wiped out within a matter of seconds thanks to a cyber attack. The same goes for shares in a company.

Even if a cyber attack is unlikely, cash holdings pose further counterparty risks – namely ongoing devaluation thanks to currency creation and the threat of negative interest rates.

For every day that $100 billion sits on a screen waiting to be ‘deployed’ into a good value stock, the greater the rate of devaluation and exposure to banking risks.

No one, not even the Oracle of Omaha, can possibly predict the next downturn and certainly not the next cyberattack.

We would suggest that perhaps Warren Buffett deploys some of that excess cash into his father’s favourite form of money and his old foe: gold bullion.

Conclusion: Listen to your parents and buy gold

Warren Buffett’s own father, the Honourable Howard Buffett, wrote in 1948:

‘The owner of such gold redeemable currency has economic independence. He can move around either within or without his country because his money holdings have accepted value anywhere.’ 

Buffett Sr. believed in the importance of holding gold as it was ‘independent of the ruling politicians’ and gave money ‘a large degree of stability’

Warren Buffett and his followers would be wise to listen to these words.

When one considers the degree of market risk today and the over valuation in stock and bond markets, it is time to rebalance portfolios.

Never have deposits been so vulnerable to negative rates and counterparty risks in the form of bail-ins.

The world has changed since Buffett’s ill judged comments on gold. In an era of negative rates, bail-ins and global currency debasement, an allocation to physical gold suddenly doesn’t seem so daft after all.

Indeed, never has holding gold bullion in allocated and segregated storage in the safest vaults in the world been more important.

Buffett deserves the title ‘Sage of Omaha’ and is to be respected but his failure to appreciate gold’s importance as a diversification in a portfolio and his repeated negativity towards gold, in contrast to his father Howard Buffett, will not be judged kindly in financial history.

News and Commentary

Palladium has rallied to levels not seen in 16 years (MarketWatch.com)

Selloff was “unusual as there was no data or market news to account for the $15 drop” – GoldCore (MarketWatch.com)

Asia Stocks Mixed Before Korea Drill, Jackson Hole (Bloomberg.com)

Ten sailors missing after U.S. warship collides with tanker near Singapore (Reuters.com)

Dubai exchange, Saudi firm plan sharia-compliant spot gold contract (Reuters.com)

Gold mining output at its lowest level since the financial crisis, says ANZ (CNBC.com)

Today’s Gold prices are not much above production costs (ValueWalk.com)

You Are Being Lied To About “Low” Gold Demand (GoldSeek.com)

Hindenburg Omens Flashing Major Warning Signal for the Stock Market (FinancialSense.com)

How Eclipse Anxiety Helped Lay the Foundation For Modern Astronomy (SmithSonIanMag.com)

Gold Prices (LBMA AM)

21 Aug: USD 1,287.60, GBP 999.82 & EUR 1,096.52 per ounce
18 Aug: USD 1,295.25, GBP 1,004.34 & EUR 1,102.65 per ounce
17 Aug: USD 1,285.90, GBP 998.12 & EUR 1,096.74 per ounce
16 Aug: USD 1,270.15, GBP 985.13 & EUR 1,082.29 per ounce
15 Aug: USD 1,274.60, GBP 986.92 & EUR 1,084.05 per ounce
14 Aug: USD 1,281.10, GBP 987.34 & EUR 1,085.48 per ounce
11 Aug: USD 1,288.30, GBP 993.67 & EUR 1,096.47 per ounce

Silver Prices (LBMA)

21 Aug: USD 17.02, GBP 13.20 & EUR 14.48 per ounce
18 Aug: USD 17.15, GBP 13.30 & EUR 14.60 per ounce
17 Aug: USD 17.02, GBP 13.23 & EUR 14.55 per ounce
16 Aug: USD 16.68, GBP 12.96 & EUR 14.25 per ounce
15 Aug: USD 16.89, GBP 13.12 & EUR 14.38 per ounce
14 Aug: USD 16.97, GBP 13.09 & EUR 14.39 per ounce
11 Aug: USD 17.09, GBP 13.18 & EUR 14.53 per ounce

http://www.goldcore.com/us/

 


| Digg This Article
 -- Published: Monday, 21 August 2017 | E-Mail  | Print  | Source: GoldSeek.com

comments powered by Disqus



 



Increase Text SizeDecrease Text SizeE-mail Link of Current PagePrinter Friendly PageReturn to GoldSeek.com

 news.goldseek.com >> Story

E-mail Page  | Print  | Disclaimer 


© 1995 - 2017



GoldSeek.com Supports Kiva.org

© GoldSeek.com, Gold Seek LLC

The content on this site is protected by U.S. and international copyright laws and is the property of GoldSeek.com and/or the providers of the content under license. By "content" we mean any information, mode of expression, or other materials and services found on GoldSeek.com. This includes editorials, news, our writings, graphics, and any and all other features found on the site. Please contact us for any further information.

Live GoldSeek Visitor Map | Disclaimer

The views contained here may not represent the views of GoldSeek.com, its affiliates or advertisers. GoldSeek.com makes no representation, warranty or guarantee as to the accuracy or completeness of the information (including news, editorials, prices, statistics, analyses and the like) provided through its service. Any copying, reproduction and/or redistribution of any of the documents, data, content or materials contained on or within this website, without the express written consent of GoldSeek.com, is strictly prohibited. In no event shall GoldSeek.com or its affiliates be liable to any person for any decision made or action taken in reliance upon the information provided herein.