Tag Archives: Warren Buffett

“The Costs Are Up, Up, Up. We’re Seeing Substantial Inflation” Admits A Surprised Warren Buffett As Powell, Yellen See Nothing, by Tyler Durden

This is a pretty good summary of this weekend’s Berkshire Hathaway annual meeting and Warren Buffet’s words of wisdom for those who don’t have a day to sit through the video. Note well Buffet’s words on inflation, there’s nobody with a better view of the entire economy. From Tyler Durden at zerohedge.com:

We already touched on two of the more colorful exchanges from Saturday’s Berkshire annual videoconference, both of which incidentally starred the traditionally far more outspoken Charlie Munger, who first crushed a generation’s monetary dreams saying that today’s Millennials will have “a hell of a time getting rich compared to our generation”, and then infuriated tens of millions of cryptofans and diamond hands (such as Dan Loeb) when he said that “the whole damn development” of crytpocurrencies “is disgusting and contrary to the interests of civilization.”

Yet while those two incidents may prompt the most Monday morning watercooler talk, what was most relevant from a macro and markets standpoint was Buffett’s observation of something the Fed and Treasury are terrified to admit: that a tidal wave of inflation has been unleashed upon the US and it’s only getting worse.

Speaking to Berkshire’s millions of shareholders on Saturday, Buffett said that he was surprised by the “red hot” US economic rebound and warned the company was being hit by inflationary pressures.

“We’re seeing very substantial inflation,” the 90-year-old billionaire who apparently does not have a Fed charge card, said in his nearly 6 hour long address to investors. But it’s what he said that was especially ominous:  “It’s very interesting. We’re raising prices. People are raising prices to us and it’s being accepted.”

Continue reading→

Here’s Why Warren Buffett Bailed On Banks & Bought Gold In One Simple Chart, by Tyler Durden

Stocks are more expensive by many valuation measures than they’ve ever been, buoyed by Fed fiat debt. Gold, unlike Fed fiat debt, is nobody’s debt. From Tyler Durden at zerohedge.com:

The headlines surrounding Berkshire Hathaway’s decision to bail on their banking exposure and buy Barrick Gold quickly faded from the mainstream media but the question of “why?” – after years of denigration for the barbarous relic – remains.

Was Buffett betting against America with a levered position on precious metals? Or was there another driver?

Perhaps, it was ‘both‘ sides of the equation – an unsustainable fiscal and monetary feudalism that can only end badly (and is building towards the endgame) – AND, as Bloomberg’s currency and rates strategist Ven Ram details below, it was the fact that – according to Buffett’s-own favorite stock market indicator – U.S. stocks are more highly valued now relative to economic output than they were even during the dotcom bubble, raising questions about the sustainability of the recent rally.

The combined market capitalization of the universe of U.S. stocks as captured by the Wilshire 5000 Index totaled $36.8 trillion as of Wednesday’s close. That amounts to 190% of the $19.4 trillion value of U.S. gross domestic product as of the second quarter.

Source: Bloomberg

The ratio eclipses the previous high reached in March 2000. After ups and downs in subsequent years, the ratio surpassed 100% in the first quarter of 2012 and pushed through successively higher levels in the following years

Applying this analysis to other U.S. indexes shows the current stock rally is lopsided and lacking in breadth. The Nasdaq 100’s market cap of about $13.5 trillion is more than two-thirds of GDP. Meanwhile, the S&P 500 Index’s aggregate market cap of $28.8 trillion comfortably eclipses the size of the economy.

Warren Buffett captured the significance of the ratio in a 2001 Fortune article, saying,

“If the percentage relationship falls to the 70% or 80% area, buying stocks is likely to work very well for you. If the ratio approaches 200% — as it did in 1999 and a part of 2000 — you are playing with fire.

Continue reading→

Guess What Warren Buffett Is Doing With His Money Right Now? by Michael Snyder

Warren’s not buying anything and he’s got a lot of cash. Perhaps he thinks cheaper prices will be on offer. From Michael Snyder at theeconomiccollapseblog.com:

Does Warren Buffett believe that a major financial crisis is coming?  In life, what people do is far more important than what they say, and what Warren Buffett is doing with his money right now speaks volumes.  During the second half of 2019, a lot of the “experts” are warning about the possibility of a market crash, and corporate insiders have been selling stocks at a rate that we haven’t seen since the last financial crisis.  There appears to be a widespread belief that the market is about to take a really negative turn, and we haven’t seen this sort of a “race for the exits” in a very long time.  But when there is a lot of fear on Wall Street, that can sometimes be an opportunity to make a lot of money.  Warren Buffett certainly hasn’t been afraid to “zig” when others are “zagging” over the years, and if he believed that there were great opportunities in the marketplace right now he would not hesitate to strike.  But as you will see below, he’s not doing that.

Warren Buffett is the most famous investor in America today, but if you are not familiar with him, the following is a pretty good introduction from Wikipedia

Warren Edward Buffett (/ˈbʌfɪt/; born August 30, 1930)[2] is an American business magnate, investor, speaker and philanthropist who serves as the chairman and CEO of Berkshire Hathaway. He is considered one of the most successful investors in the world[3][4] and has a net worth of US$82 billion as of July 18, 2019, making him the third-wealthiest person in the world.[5]

Buffett was born in Omaha, Nebraska. He developed an interest in business and investing in his youth, eventually entering the Wharton School of the University of Pennsylvaniain 1947 before transferring and graduating from the University of Nebraska at the age of 19. He went on to graduate from Columbia Business School, where he molded his investment philosophy around the concept of value investing that was pioneered by Benjamin Graham. He attended New York Institute of Finance to focus his economics background and soon after began various business partnerships, including one with Graham. He created Buffett Partnership, Ltd in 1956 and his firm eventually acquired a textile manufacturing firm called Berkshire Hathaway, assuming its name to create a diversified holding company. In 1978, Charlie Munger joined Buffett and became vice chairman of the company.[6][7]

Buffett became one of the wealthiest people in the entire country by aggressively investing his money.  His keen instincts have enabled him to make the right move far more often than not, and that is why what he is doing with his money right now has so many people concerned.

Instead of pumping his company’s cash into the stock market, Buffett has decided to hoard it.  In fact, Berkshire Hathaway currently has 122 billion dollars that is just sitting there and doing nothing at all…

Warren Buffett, known for being one of the world’s most prescient investors, has kept quiet on whether U.S. equities are too expensive at a time when the global economy is slowing, Bloomberg reports. But he’s reportedly hoarding a record $122 billion in cash at Berkshire Hathaway Inc., leading to some speculation that he sees a recession on the horizon, or at least is sending some sort of warning. The cash pile is more than half the value of Berkshire’s $208 billion portfolio of public companies, and the only time that percentage has reportedly been higher since 1987 was in the years leading up to the 2008 financial crisis.

Yet again, we are talking about something that hasn’t happened since the last financial crisis.

Red flags are popping up all around us, and yet most people are choosing not to pay attention.

If Buffett believed that an “economic boom” was coming and that stock prices were going to go higher, sitting on a giant mountain of cash wouldn’t make any sense at all.

But if he believed that the market was about to crash and that stock prices would soon be far cheaper than they are now, having a mammoth cash hoard would make all of the sense in the world.

Of course Buffett is not the only one that can see what is coming.  Earlier today, a CNBC article lamented the fact that there has been a “sudden pullback” in spending among wealthy individuals all over America…

From real estate and retail stores to classic cars and art, the weakest segment of the American economy right now is the very top. While the middle class and broader consumer sections continue to spend, economists say the sudden pullback among the wealthy could cascade down to the rest of the economy and create a further drag on growth.

Luxury real estate is having its worst year since the financial crisis, with pricey markets like Manhattan seeing six straight quarters of sales declines. According to Redfin, sales of homes priced at $1.5 million or more fell 5% in the U.S. in the second quarter. Unsold mansions and penthouses are piling up across the country, especially in ritzy resort towns, with a nearly three-year supply of luxury listings in Aspen, Colorado, and the Hamptons in New York.

When an economic crisis is ahead, the correct thing to do is to reduce spending, and obviously that is precisely what many at the top of the economic pyramid have decided to do.

Meanwhile, millions of other Americans do not understand what is happening, and they just assume that everything is going to be just fine somehow.

A lot of people out there seem to believe that the problems that caused the last financial crisis were “fixed” and that the good times will just keep on rolling for many years to come.

Perhaps the blind optimists will be proven right and Warren Buffett will be proven wrong this time.

It is theoretically possible that this could happen, but I certainly wouldn’t bet on it.

 

Even Warren Buffett gets it: They’re coming for your money, by Simon Black

Governments take people’s money until people stop them. From Simon Black at sovereignman.com:

By the year 1380, the Hundred Years’ War between England and France had already been raging for decades.

And the war wasn’t going very well for England.

France had managed to recapture most of the territories they had lost early in the war; meanwhile French naval fleets were ravaging the coastline of southern England and destroying English commercial vessels.

To make matters worse, England had recently been devastated by the Bubonic Plague, which killed nearly a third of the population.

Most of England’s military leadership was dead. And the country’s new King was just a 13-year old boy known as Richard II.

The costs of the war were mounting, and England was rapidly running out of money.

The government had previously borrowed enormous sums to finance the war effort, pledging the Crown’s jewelry as collateral. They were close to being forfeit.

Taxes had continually been raised in England throughout the previous decade to help pay for the war, including a poll tax in 1377, and a second poll tax in 1379.

That second poll tax was an early form of progressive taxation in that the wealthy paid a much higher amount.

As an example, archival English tax records from 1379 show that, in the town of Thuxton in Norfolk county, the wealthiest resident (Sir Roger de Wylasham) paid FAR more tax than everyone else COMBINED.

Elizabeth Warren, Bernie Sanders, and AOC would probably say this is still not enough…

And it wasn’t. Because England still needed money.

Continue reading

Warren Buffett isn’t buying. Why should anyone else? by Simon Black

Perhaps you’re long and strong on the stock market, maybe even leveraged, because deep down inside, you know you’re a better investor than Warren. Good luck with that. From Simon Black at sovereignman.com:

Over the weekend on Saturday morning, amid its usual fanfare and attention, Warren Buffett’s company Berkshire Hathaway released its annual report to the public.

This is a pretty big deal each year. Investors and financial reporters typically wait with baited breath to hear what the Oracle himself has to say in his legendary annual letter.

Buffett’s topics in previous letters have covered a lot of ground– the state of the US economy, value investing education, why Wall Street is so deeply flawed, commentary on financial markets, etc.

This year’s letter was, as usual, quite interesting… but primarily because of what Buffett said about his own business.

Berkshire Hathaway is an enormous enterprise; it’s essentially a $500 billion holding company that owns dozens of smaller businesses, all of which collectively generate tens of billions in free cash flow.

Buffett’s primary mission is to acquire more businesses and expand Berkshire’s portfolio… and then ensure that each of those subsidiaries has top quality management to grow the cashflow.

And that’s what was so interesting about this year’s letter: Buffett couldn’t really do his job.

According to Warren Buffett himself:

In our search for new stand-alone businesses, the key qualities we seek are durable competitive strengths; able and high-grade management; good returns on the net tangible assets required to operate the business; opportunities for internal growth at attractive returns; and, finally, a sensible purchase price.

That last requirement proved a barrier to virtually all deals we reviewed in 2017, as prices for decent, but far from spectacular, businesses hit an all-time high.

Now, consider that Berkshire Hathaway’s cash pile rose to an astonishing $116 billion at the end of 2017.

With that much money on hand, very few companies are out of Buffett’s reach.

Specifically, $116 billion would have been enough money to acquire any one of 465 out of the 500 largest companies in the United States– including Nike, Starbucks, UPS, Netflix, and Ford.

To continue reading: Warren Buffett isn’t buying. Why should anyone else?

Gates Foundation, Warren Buffett, Others Should Worry About Donations to Clinton ‘Charities’, by Charles Ortel

There are a lot of unexplored and unexplained tax issues for both the Clinton Foundation and its donors that could land them in hot water. From Charles Ortel at lifezette.com:

The revived FBI and continuing IRS investigations will eventually realize due diligence has been lacking from the start

So the FBI is again investigating the “Bill, Hillary & Clinton Foundation.” That should make Bill and Melinda Gates, Warren Buffett, and other affluent Americans who have given to the Clinton Foundation wish they had asked more questions before writing those checks.

Here’s why: “Due diligence” doesn’t end when the Clinton “charities” cash your check.

The FBI agents and forensic accountants probing the Clinton Foundation must go all the way back to Oct. 23, 1997, and examine precisely how a public charity, organized to hold federal records of the Clinton presidency, somehow evolved by 2002 to “fight HIV/AIDS internationally,” plus a raft of additional tax-exempt purposes that were never properly authorized in the foundation’s Articles of Incorporation.

The FBI should train its sights on the Dallas office of the IRS. On May 19, 2015, Rep. Marsha Blackburn (R-Tenn.) and colleagues in the U.S. House of Representatives called on the federal tax agency to investigate the Clinton Foundation. The IRS treated this solidly grounded request dismissively.

It was not until July 22, 2016, following a second congressional request led by Blackburn, that then-IRS chief John Koskinen said agency officials in Dallas would open a review of the multiple issues flagged by the Republican members of Congress.

Records already held by the IRS concerning the main Clinton Foundation and its affiliates are voluminous and include key information the public does not have, such as the names and precise amounts donated by major contributors each year from 1998 through 2016.

The IRS also has the ability to cross-check declarations made by the Clinton Foundation with declarations made by donors such as the Gates Foundation that are private foundations. The Clinton charity is a public foundation, and there are significant differences involved.

To continue reading: Gates Foundation, Warren Buffett, Others Should Worry About Donations to Clinton ‘Charities’

He Said That? 5/13/17

From Warren Buffett (born 1930), American business magnate, investor, and philanthropist, 2003 Berkshire Hathaway Annual Report:

I view derivatives as time bombs, both for the parties that deal in them and the economic system. Basically these instruments call for money to change hands at some future date, with the amount to be determined by one or more reference items, such as interest rates, stock prices, or currency values.

Unless derivatives contracts are collateralized or guaranteed, their ultimate value also depends on the creditworthiness of the counter-parties to them.

But before a contract is settled, the counter-parties record profits and losses – often huge in amount – in their current earnings statements without so much as a penny changing hands. Reported earnings on derivatives are often wildly overstated. That’s because today’s earnings are in a significant way based on estimates whose inaccuracy may not be exposed for many years.

The errors usually reflect the human tendency to take an optimistic view of one’s commitments. But the parties to derivatives also have enormous incentives to cheat in accounting for them. Those who trade derivatives are usually paid, in whole or part, on “earnings” calculated by mark-to-market accounting. But often there is no real market, and “mark-to-model” is utilized. This substitution can bring on large-scale mischief.

As a general rule, contracts involving multiple reference items and distant settlement dates increase the opportunities for counter-parties to use fanciful assumptions. The two parties to the contract might well use differing models allowing both to show substantial profits for many years. In extreme cases, mark-to-model degenerates into what I would call mark-to-myth.

The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear.

In my view, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.