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-- Posted Thursday, 11 December 2008 | Digg This Article | Source: GoldSeek.com
Readers of the new official Warren Buffett biography ‘The Snowball’ will be taken aback by the review of his presentation to the Sun Valley meeting of the US super-rich in 1999. Then he suggested that the Dow might go nowhere for 17 years, following a pattern seen in many previous epochs, most recently 1964-1981. Remember that 1999 represented the very height of the dot-com bubble. Buffett’s statement was bursting the bubble of business success stories like Bill Gates who sat in the audience, and gasped at this prediction. Yet how wise the Sage of Omaha has proven to be. The dot-comers have seen their fortunes shrink and not recover from the bust. And the Dow today is substantially lower than in 2000. Why buy now?Why then did Warren Buffett put out a buy notice on stocks last month? Is this not a contradiction of his own prediction about 1999-2016? Well, to be fair the Dow has rallied 20 per cent since his call. But is this therefore nothing more than a bear market rally? If we are to take the seminal 1999 statement from Warren Buffett seriously, and he has not denied it and presumably endorsed its inclusion right at the front of his new biography, then that has to be the conclusion. However, it could be that the inflation outlook has changed so dramatically in the wake of the $8 trillion in bailouts and stimulus packages now being thrown at the US economy that Buffett is having a re-think. Stocks could well be buoyed upwards by a hyper-inflationary economy. This has happened most recently in Zimbabwe though this is hardly an economic model worth replicating in the world’s biggest economy. Q-theoryRussell Napier, author of the definitive book ‘Anatomy of the Bear’ reckons stocks could rise for a couple of years on the back of the money being injected into the global economy, but this will ultimately fail and lead to stocks plunging to new lows. According to Q-theory - which values stocks by reference to replacement value of their assets - the Dow market bottom is at around the 4,000 level or another 55 per cent down. The ride from 4,000 back to 14,000 would be a very substantial roller-coaster ride, and that might indeed take until 2016 as Warren Buffett suggested in 1999. But in the short term a two year bull market in an inflationary environment, and presumably with a weakening dollar, would be highly positive for precious metals, and particularly their stocks. As suggested elsewhere on this blog the Dow-to-gold ratio could well go to its historic low of one: that is to say $4,000 an ounce for gold and the DJI at 4,000 within this two-year time horizon and maybe next year.
-- Posted Thursday, 11 December 2008 | Digg This Article | Source: GoldSeek.com
Previous Articles by Peter Cooper
About Peter Cooper:
Oxford University educated financial journalist Peter Cooper found himself made redundant by Emap plc in London in the mid-1990s and decided to rebuild his career in Dubai as launch editor of the pioneering magazine Gulf Business. He returned briefly to London in
1999 to complete his first book, a history of the Bovis construction group.
Then in 2000 he went back to Dubai to become an Internet entrepreneur, just as the dot-com market crashed. But he stumbled across the opportunity to become a partner in www.ameinfo.com, which later became the Middle East's leading English language business news website.
 Over the course of the next seven years he had a ringside seat as editor-in-chief writing about the remarkable transformation of Dubai into a global business and financial hub city. At the same time www.ameinfo.com prospered and was sold in 2006 to Emap plc for $27 million, completing the career circle back to where it began a decade earlier.
He remains a lively commentator and columnist as a freelance journalist based in Dubai and travels extensively each summer with his wife Svetlana. His financial blog www.arabianmoney.net is attracting increasing attention with its focus on investment in gold and silver as a means of prospering during a time of great consumer price inflation and asset price deflation.
Order my book online from this link
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Does Buffett Stand By His 1999 Sun Valley Prediction?
