Buffet bearish on commodities (isn't gold a commodity?)

[metalman]

Re: Buffet bearish on commodities (isn't gold a commodity?)

It doesn't.

My take:

For a very long time Buffett's doctrine was "use the [Berkshire] float to buy companies that can consistently generate cash in business sectors that don't require significant re-investment of new capital". Commodity production companies don't fit that last part because production depletes the reserve base, thus requiring the "recycling" of significant amounts of the free cash flow to replenish the reserves.

Buffett entered the energy sector by investing in the utility portion of the business, most notably through MidAmerica Energy, a gas pipeline operator/distributor and power generation company. But as the FIRE economy matured in the decade of the 1990s the companies that fit Buffett's criteria [like Coke & Gillette] got bid up well beyond historical valuations and Berkshire started piling up cash. It would appear he was pretty well forced to look into "non-traditional" [by Buffett standards] investments. He raised a lot of eyebrows with his 1998 [?] purchase of silver bullion.

The interesting thing about lots and lots of cheap money is that, in addition to the traditional FIRE interests, it also benefits the capital intensive companies...which is the main reason oil, mining, and other resource sector companies started to perform as Greenspan opened the spigots after the tech bust and 9/11. The PetroChina purchase and sale was a remarkably short duration holding for Berkshire, but maybe indicative of his recognition that the investing world has changed. Most interesting is that he sold, because in the late 1990's as the market was skyrocketing he didn't divest of any of Berkshire's overvalued public company positions...and he mentions in one of his subsequent letters to shareholders "What was I thinking?".

good points. so why is tech rebounding now more than commodities, i wonder? maybe because tech didn't get beaten down so bad... and everyone is now chasing the latest 'next bubble'... i mean... now that everyone believes in bubbles... must mean they're... over... :eek:

[GRG55]

Re: Buffet bearish on commodities (isn't gold a commodity?)

good points. so why is tech rebounding now more than commodities, i wonder? maybe because tech didn't get beaten down so bad... and everyone is now chasing the latest 'next bubble'... i mean... now that everyone believes in bubbles... must mean they're... over... :eek:

Two thoughts on tech vs commodities;

• the down-elevator-ride in commodities combined with all the deflation talk has probably scared the hell out of people, so there's no game there at the moment for the Wall Street boyz;
• tech on the other hand offers the chance to be gamed for a while ["businessgottabuytechtocutcosts", "Windows 7, pass it on", the "hardware upgrade cycle is overdue", blah, blah], generate some investor interest, and create some transaction fee revenue for the brokers...who knows they may even be able to float secondary issues for some of these companies.

The problem with "everyone" now believing in bubbles is that every time the price of anything goes above some public perception of "the right price" it becomes a bubble. Recently I heard a commentator saying that gasoline was in a bubble...just because the price had gone up several weeks in a row.

[jtabeb]

Re: Buffet bearish on commodities (isn't gold a commodity?)

As JK said, gold is money/currency and not a commodity in our current situation.

Don't tell FRED that, he will send you to RANT AND RAVE!

[metalman]

Re: Buffet bearish on commodities (isn't gold a commodity?)

Don't tell FRED that, he will send you to RANT AND RAVE!

what are you talking about? gold is currency, not money.

the fourth currency, to be exact

pay attention, dude!

[dummass]

Re: Buffet bearish on commodities (isn't gold a commodity?)

Here's the latest commodity prices as of June 09:

http://www2.fdic.gov/recon/chart/c10t00.html

[nero3]

Re: Buffet bearish on commodities (isn't gold a commodity?)

On his mentor Graham: He missed gold in the seventies, and made some very bad calls in 71,or 73 on the future of gold. However, speculating on some metal, a greater fools game, is as far from value investing it is possible to come, unless it is buying silver, when it's priced like in 1998.

His buying of silver in 1998, fit together with his article the same year, that the 18 year cycle turned in 1998, with (increasing long term interest rates ), however that turn in long term rates never happened.

On Buffet: His way of playing commodity prices (except when he bought COP when oil prices were peaking) (he and bill gates were even looking at oil sands in August last year), is to play on companies that have good pricing power / expanding moat as costs and inflation goes up, while the benefit comes after commodity prices peak, and profit margins expand.

It also appears he are not bearish on agricultural commodities.

He bought COP when oil was peaking, and he sold silver to early. Buffet have himself written about 18 year cycles, similar to the cycle David Rosenberg have been mentioning lately. In Buffet minds this bear cycle started already in around 1998, therefore, 2016 would be the point where inflation peaks in this kind of scenario. However, during the bear cycle in the seventies, the CRB went 3,5 times. In this bear cycle, that have already happened. So there could be a strong dollar, low commodity prices, and expanding profit margins kind of 1950 style bull market coming. That's not impossible.

[cindykimlisa]

Re: Buffet bearish on commodities (isn't gold a commodity?)

"buffet's bearish on commodities...'

ha! had to read this 2 times before i figured out it's from 3 years ago... when gold sold for $550. ha ha ha!

if this doesn't prove the wisdom of sticking to what you know, nothing does.

also a reminded... ej stuck his neck out then... said gold 'not a bubble' when most said it was, except the gold bugs of course...

In January 1980 gold was fixed at a record 850 USD an ounce while high inflation, strong oil prices , Soviet intervention in Afghanistan as well as the impact of the Iranian revolution prompted investors to heavily buy the metal.

Adjusting for inflation, meant the 1980 record high price was actually $2,079 an ounce at 2006 prices,

What does this 1980 price and comment say about what you and all the other goldbugs "know" Metalman?

[metalman]

Re: Buffet bearish on commodities (isn't gold a commodity?)

In January 1980 gold was fixed at a record 850 USD an ounce while high inflation, strong oil prices , Soviet intervention in Afghanistan as well as the impact of the Iranian revolution prompted investors to heavily buy the metal.

Adjusting for inflation, meant the 1980 record high price was actually $2,079 an ounce at 2006 prices,

What does this 1980 price and comment say about what you and all the other goldbugs "know" Metalman?

yes, i first read about that here in 2001.

well... if you came here looking for goldbugs to spar with you won't find many goldbugs here, cindy. most of us are hanging out waiting for the itulip 'sell' call after hearing the 'buy' call in 2001.

i never trust anyone's opinion on gold who failed to call it in 2001... there's no shortage of bullshitters out there who missed it... or sold their gold since then... or otherwise scewed up.

[cindykimlisa]

Re: Buffet bearish on commodities (isn't gold a commodity?)

yes, i first read about that here in 2001.

well... if you came here looking for goldbugs to spar with you won't find many goldbugs here, cindy. most of us are hanging out waiting for the itulip 'sell' call after hearing the 'buy' call in 2001.

i never trust anyone's opinion on gold who failed to call it in 2001... there's no shortage of bullshitters out there who missed it... or sold their gold since then... or otherwise scewed up.

Metalman

Not looking to spar - Just a real answer to my question as so often you demand here. An answer rather than the off subject "bullshit" you regularly espouse to a question you don't like. Its not all about 2001.

[metalman]

Re: Buffet bearish on commodities (isn't gold a commodity?)

What does this 1980 price and comment say about what you and all the other goldbugs "know" Metalman?

so... if i own gold then i must be a gold bug... your presumption is telling.

why ask a question that's been asked and answered here already yrs ago? such as the article that goes with this chart...



google site:itulip.com gold