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

GoldCore's picture

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

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


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Raging Debate's picture

Buffet is going to face the devaluation choice vs. gold. Gold can also be set at a fixed price by .gov. Go sideways on stock after crash for 10-15 years or will .gov fix gold price again? What a conundrum? Fuck that hobseian choice I would just retire. 

In hindsight, property rental business like Blackrock was likely the soundest choice. Now property is bubblicious again in many if not most areas. Tech like big data would have been good too but I also would have been cautious seeing the .com 1.0 bubble play out the way it did late 90's. 

 The point being devaluation is your true killer and what so many here Zh have screamed about for years as risk. 

illuminatus's picture

Our kindly looking uncle sold out a long time ago, I hope he has fun living with himself.

JoseyWalesTheOutlaw's picture

So the story is Ole Warren can't get any inside info from this administration? Is that possible?

Decoy 409's picture

I remind of these past things as it is true 'haw fast people forget'.

For one to think anything at all HAS HONESTLY been done for the 99% over the years is gravely mistaken as these years gone by are like a fine played chess game. The moves have and are being made to change the current and bring in the new by the 1%.

Tell us with AI/Robotices and the year 2024 just brought up as we are ahead of schedule! Yes they state we can look forward at this time to a reduction in world work force human participation. And by a whopping 67%+ .

Let that sink in as youngsters and 401k to pension time is gone just not been announced.

order66's picture

All this from the same guy who said derivatives are extremely dangerous yet had multi-billion dollar portfolio of them (from which he made a shit ton of money).

The same guy who pushes the same diversification philosphies of every other money manager and then says "if you know what you're doing, diversification doesn't make any sense".

Talking out of both sides of his mouth and his ass all at once.

But yeah, listen to Buffet.

Decoy 409's picture

And how in the world could people that are considered serious investors that are not part of the 1% owning the vast believe anything at all that this foul stench of 1% has to say. It is all in gibberish.

1981 it was already known as to most of this and ironic but TRUE I attempted to reveal some but found tossed from one board to another for doing it so by calling the kettle black,

A excerpt from under that Derivative piece,

excerpt - June 20,2011: Monkeys & String Puppets / Rolling Greece Blackouts Start Today

I was looking over a Special Report at Investmentnews.com today for Sat. June 18 2011 on ‘The Largest Independent Broker Dealers’ (www.investmentnews.com/section/BROKERDEALERS) and I see that since 2009 the top dogs have lost millions. So when the report is it’s all fine and dandy,well under the cream is a different story as there is no light in sight for Broker-Dealers, (Alternative investments claim another B-D http://www.investmentnews.com/section/brokerdealers.)

Why even the top Broker-Dealers have lost millions of client money since 2009 to spite the so called hefty profits. Of course those that lost it were still paid and collected their bonuses (Click here for a chart showing bonuses paid from 1985-2009.) Source:http://www.osc.state.ny.us/press/releases/feb10/022310.htm.)

On the 27th of April this year a fine piece came out from Sheryljmoore.com ‘The Largest Independent Broker-Dealers' in which has the cake run down 'Top independent broker-dealers ranked by 2009 gross revenue.'

Now what we have had going on is the borrowing from Peter to pay Paul. This borrowing was based upon false pretense to begin with and can be ranked right up their with the 'Liar Loans.'

Game mathematicians are employed at the white house to keep the game going. Numbers are their game. To start something such as pensions,one would at the same time know in advance the oncoming baby boomers retirement days. With that they would have seen that the population figure in this country would be out of control. And prior to granting these so called pensions to the up and coming retirees,that there would be not enough cake to pay the ridiculous numbers in the future.

Now if the gold standard would have been kept in check,why it is possible that there may have been the funds to do the massive payouts that were up and coming to the pension sector along with all kinds of things. And the old fiat paper would not have been printed out as it has been to cover the years and years of swindling world wide.

William Black wrote a piece (great stuff) May 30,2011 ‘Bad Cop;Crazed Cob – The IMF and the ECB source – New Economic Perspectives.

And I follow that up with a Aug. 4,2009 great interview for those that have forgot,or simply were not in the know. You can say all you like about Max Keiser,however keep in mind that long back it was already fully known and expressed where things were at and where they would evolve to now.

Tyler Durden of ZeroHedge Speaks with Max Keiser source- distressedvolatility.com

I see why some of the monkeys and string puppets state that old William Black is old and washed up and was given the chance. Well now it should be clear to all that those monkeys and string puppets that profess such and avoid true regulating,well it is all becouse those that do,at heart,are no more than con artisits that are in support of 'Sham WoW' and have done no more than to help create and keep this violent sunction cup or 'Super Milker' alive.

 

Banker Buster's picture

old Warren "the croney" Buffett knows his Obama economy was a massive fraud failure but he made money the easy way and got bailed out by the fed, through Wells Fargo, goldman and others.  He also rode the buyback whore pony like no one else.  "I don't buy tech because I don't understand it" but he'll buy it if he's got the ability to force them into a share buyback situation.  If the fed didn't bail out his big banks, Buffett would be finished.  Buffett would be creatively destroyed and someone else would be in his spot.  This fucker had a direct line to hank paulson during the financial crisis.

Decoy 409's picture

I do believe that the TRUTH is SHINING THROUGH NOW for all of those that have been paying attention.

LOOK OUT BELOW as the GS has spent it's chips for the day. maybe they will simply get the orgy together and make some afternoon slime,fix things ya know.

Little song and dance I put together a short time back. Why the credit chips of UNSOUND are louder than a WoodStock Concert these days spelling time to reset the Pole Position game to?

The Decoy 409 POST - July 5,2011 - The QUADRILLION (Plus!) Ticking Time Bomb,Derivatives

http://www.duffminster.com/times/node/250

That IMF meet a few months ago speaks of 20 cents on the dollar come cash out for the good old U.S. citizens,along with a thank you!

 

me123me's picture

When i stop seeing everyone and their mother recommending gold then I will buy it. 

iamerican4's picture

Buffett is CIA. Made his bones with the CapCities' ABC takeover.

CapCities' board was all CIA "Old Hands": The Knight of Malta-led Roman Catholic CIA - like the Opus Dei FBI and "papal key" NSA, a Vatican action branch of the Risen Babylon we came to America in covenant with God to escape - was adjudicated guilty of the assassination of JFK - 'Hunt v. Marchetti' - to restore Rome's Rothschild/Rockefeller FedScam he had ended and put us back into Rome's latifundial slave plantation of Vietnam as papal catspaw on behalf of the five percent Roman Catholic colonial Organized Crime ruling false-elite which owned 95% of Vietnam's wealth - under attack by America-loving "whig" Jeffersonian Ho Chi Minh who, like we Americans sought to be free of king and pope - after his NSAM263 ordered us out six weeks earlier with 120 dead.

N.B. Papal knight "Wild Bill" Donovan recruited for his unconstitutional startup exclusively at Roman Catholic schools.

Farqued Up's picture

Since he is the insider inside the in-crowd elite, he is an evil SOB that should be listened to with keen attention. He and his financial thugs have wrecked the system and this is the only way we will ever see him indirectly admit it.

I will never forget him immersing his head in the public feed trough with his sweetheart deal on 6+ % on Gov bonds. That was back right after the Lehman nuke.

I'll bet he endorses Chemtrails, vaccinations, GMO's, Georgia Guidestones, gold confiscation, spirit cooking, Pedophilia. He is a very adept reptiloid shape-shifter.

Honest Sam's picture

Well....LAH-De-Fucking-Dah.

Quick all here who DO NOT see a market correction or crash coming, raise your right mitts. O.K. All of us.,

Now.

Mr. Buffet and all of us who see a market crash or correction coming, within one year of it actually happening, raise your left mitts.

Well, what do you know.  

EVERYONE knows a market crash or correction is going to happen but not one fukcing one of us know WHEN that will happen within even one year of it actually happening.  

You too, can be Warren Buffet. 

Silver Savior's picture

If I was Buffett I would sell everything and put all currency in nothing but gold and silver and get out of investing. That's the cold hard truth. 

Everything around is going to hell, get out while the market is at the top. Why look around for peanut investments after the crash? Nothing is coming back. Reminds me of the decades after the crash of 1929.

Perhaps Mr Buffett can learn more from the millions of people who are just trying to make it. They are the canary in the coal mine. They see first hand how rotten things are.

HermanVanCuckold's picture

According to US debt clock, global gold production is 69 mil oz so far this year. At these prices, that's around 86 billion dollars.

I'm not sure how many oz (physical at least) he could buy without pushing the price higher than he might like. There isn't enough to go around for everyone to take 5% positions

Silver Savior's picture

Split the difference with silver........ Oh wait there is even less of that available. Ummmm go gold, silver and Bitcoin then. 

Hikikomori's picture

Since, from time to time, markets crash, a market crash is ALWAYS "getting closer and closer" - the problem is identifying WHEN the crash will occur.

Latitude25's picture

Buffet likes good companies at reasonable prices but never buys gold miners.  Now why is that?

The Fed's Ghost's picture

For being illuminati, he's not very luminated.

www.realgoldira.com

Silver Savior's picture

It's because he is one of those anti metal trolls. Fiat is all he knows and it shows. He is just good at what he does and that is making fiat currency. Until is worthless of course.

Iconoclast421's picture

This could have been written in 2014. Their cash hoard was pretty damn big back then too.

Buck Johnson's picture

This market crash is getting closer and closer, so either an incident aka start a limited war with someone will happen to use that to blame for the market or they will blame it on hackng.

 

 

PT's picture

Of course Buffet can see if a crash coming.  All he has to do is decide to sell.  But he might change his mind!

Honest Sam's picture

Buff just BOUGHT  BNY Mellon, which is one of the richest banks in the world, with gazillons of Old money in trust accounts as well as another company.

Didn't he just say there are no good buys?  

What a clever little liar. Like he would tell the world what he is really doing. 

Honest Sam's picture

War is bullish for the stock market, all commodities markets.  

Where did you get your investment training?  

swmnguy's picture

I think "Buck" has his reasoning backward, but I do think there's incentive to start a war.