Berkshire Hathaway
Unemployment
Gold
To quote Jim Rogers from an October 31 interview on Bloomberg:
I disagree with a lot of what Jim Rogers says (his call to buy agricultural commodities in that interview was an absolute tragedy), but this is a simple, accurate analysis of the problem. Citigroup is a three-headed monstrosity of phony bookkeeping - call it "The Three C's." Commercial Real Estate + Credit Cards = Citigroup. The bank is a black hole about to get on its black horse and ride out into the world on Monday.
" I wouldn't lend money to a guy with phony bookkeeping and you wouldn't either."
The next "black hole" is unemployment. It's not black because we don't have the information. It's black because we're all ignoring it. You keep hearing that unemployment will "possibly go as high as 8% by the end of 2009." Ridiculous. Add up just the announced layoffs (if you can) and you will see that we'll be lucky if unemployment isn't 8% by the end of January (although the number may have to be revised upwards in February or March). There is 8% unemployment in California already and California has led the nation in economic trends - good and bad.
The Horseman of Unemployment has Citigroup is on its horse and when those two are mounted, Berkshire Hathaway is next to ride. Unemployment will insure that the companies behind Berkshire's "investment" in junk bond CDS suffer devastating losses and default. Citigroup's debacle will kill worldwide averages and insure our insane levels of volatlity stay nice and high. Buffett bet long the averages and short volatility in 2007. Nice trade, Oracle.
Therefore will the Banshee of Berkshire ride, causing terror across the land.
With all the panic, gold should do nicely - maybe $850/ounce, maybe a bit higher. But as she mounts that next rise, beware, the Golden Goddess also mounts her horse and prepares to ride - fast - down Mt. Econolypse into the tiny and ever-shrinking town of Deflationville in the valley below - and then on to the valley below that and then the valley below that.
That will not be a nice time. People will be a little confused then.
But I predict this is an economy which will require total capitulation in all the financial markets before it turns. We must all be terrified and frustrated before the Econolypse will pass.
...And then things will start to turn around.
May you live in interesting times.
4 comments:
Rogers call to buy commodities was a long term call. He has been saying that he would buy them and continue buying as they went up or down.
Thank you for the comment, but I have to respectfully disagree.
It was a terrible call. This "oh, but it's for the long term" stuff is just an excuse.
He also made a bad call on bonds.
I disagree with your deflation concern, in the long run.
Land and gold and assets of that nature can be considered a store of wealth, not profitable "investments". They store value very well compared to the dollar.
Show me anywhere in the US where I can buy land or gold for cheaper today than I could a hundred years ago, or even 50 years ago. They may not be good investments, but they do store wealth much better than our fiat dollar. A lot of people confuse storing wealth with investing...
Inflation will continue to occur in the future. Deflation is a minor short-term issue. I don't see the deflation undoing what inflation has done for the last 50-100 years... I expect things to get very bad in the economy - and the Fed to continue adding dollars to the system. This does not bode well for the dollar in the long-term.
We can argue against each other for as long as we want. Time will tell the story.
Forgot to add to this, "A lot of people confuse storing wealth with investing..." - In the end, fifty years from now, the people that bought an ounce of gold or an acre of land still have just an ounce of gold or an acre of land. It is a store of wealth. Holding these items alone doesn't create wealth (unless you are holding land near a city you expect to expand and value the land more highly, etc, etc). There are exceptions, but for the most part, just holding these items as a store of wealth will beat the perosn who just holds USD's as a store of wealth.
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