Buffett Says Now Is the Time to Buy U.S. Equities

[The Tim]

[rose-colored-coolaid]

I think Buffett is obviously a very gifted trader. He has some very smart advice, which everyone should take to heart - for instance, he strongly extorts a buy and hold mentality. He also correctly noted how dangerous the derivatives market is.

That said, he's struggled a little bit the last 5 years or so. It seems to me that he's mistimed some major international trends, among other things. The man is over 80 years old, and while he has tremendous experience, almost nobody is as intellectually agile at that age as they are younger in life. For most people, 70 is about the age where extra experience is canceled out by declining mental capacity. Is this the case with Buffett? I can't say, but in his case in particular it might be wise to take the advice that past performance may not predict future performance.

Oh yeah, I also think he's both right and wrong on this one. 8,750 DOW seems to be kind of an equilibrium point right now...but I expect one more bout of selling to push things down before any recovery can begin. The bounces after each round of selling have been...too resounding, suggesting not all optimism has been squashed from the market yet. My guess is better opportunities in 6 mos than today, and probably better opportunities internationally than at home. But then, I don't have the track record of Warren Buffett.

[perfectfire]

I agree with you both on Buffet. On the more general point of the "do the opposite of whatever everyone else is doing" strategy I have to say that it is way too simplistic. People think it sounds cool like you're some kind of rebel I guess.

[synthetik]

The last several years has taught me that Buffett is not really a "good guy"; he's an opportunist like everyone else. If he's coming out and saying "buy now" that may mean that he's already bought in and hoping for a self-fulfilling prophecy.

If you want my opinion however, I think he's DEAD wrong. I exited all my PUT positions last week and have been looking to get back in SHORT on a big multi week/month rally. So far that looks like it may not be in the cards, but if we get it I plan on shorting the hell out of it, maybe down to the DOW 7000 range. I feel that the DOW may ultimately fall to 5000-5500 range by early to mid 2009, but that's just a guess (like everything I do).

My forecast since 2006 hasn't changed. I feel that we're going to get a depression and that it's going to last a long time. So 5K on the DOW isn't much of a stretch.

When I do decide to go long, it will most likely be in commodities, both in commodity futures (Gold, Silver, Oil, Nat Gas, Corn, Wheat), and companies involved in agriculture, energy and mining.

I could be wrong, but I think we're getting severe deleveraging and deflation in assets to be followed by a currency crash and massive hyperinflation. So long term investments in "real" things like food, water, energy and physical metals seems like the way to go.

We wont' see current house prices for another 10-15 years and the only people who will be buying will be those with cash and real assets. Lending will basically cease and prices will be driven into the ground (See Eleua's prediction of 80% haircut). There won't be a lot of people around with any cash or anything real, so you can imagine how much of a haircut these types of assets will take (houses, cars, boats, art, commercial RE, businesses of all types, plasmas). Anything that is normally purchased with a loan is going to be wiped out.

To me the ultimate play would be to stay in cash, with a 30% balance of precious metals and wait out the storm. Then start buying up assets that have been destroyed (see above).

Buffett is wrong. He hopes this is the "bottom" and he hopes that you'll be believe it too. We are going to "reset" (see Iceland, Argentina, Zimbabwe) and it doesn't matter what anyone says or does. There is no "fix" for 25 years of bubble economy other than a very long, protracted period of deflation. Look this up:

Kondratieff Cycle (specfically, the Winter part)

While it's true that commodities also get destroyed in deflation, I'm looking at this from a longer term perspective; and mostly from an energy depletion standpoint. There is nothing to suggest that we have any more oil than we had two years ago, in fact, to the contrary. China and India may slow a little, but everyone over there wants to live the way we do and I don't see that changing.

[lamont]

I think we're definitely due for a bear maket rally any day now, but i've been thinking that for a couple of weeks now. The deleveraging and flight to cash has been far more brutal than i ever expected. We could see another round of it ahead of settling all the lehman CDS claims on the 21st. I'm thinking that Monday or Tuesday we start to see a bear market rally, however.

After that, i don't think we're out of the woods and I think that Buffett is early. Housing needs to fall to be more in-line with historical ratios compared to salary, and we're just at the start of the decline of PCE. If we see more reasonable asset values, see PCE start forming a bottom and see reasonable debt loads then I'd say we're going to start a recovery and we don't seem to be anywhere near that point yet. We might have gone through the worst hours of the financial collapse, but there's still other derivatives that could implode, and it looks like the flight to $USD is causing currency dislocations in Brazil, other emerging markets and asian economies and causing the Russian stock market to crater. It still doesn't feel like we've seen the darkest hour and the global recession/depression is just getting started. Equities markets do tend to lead conditions, but right now with the steep drop in the markets I think we're foreseeing the darkest hour 6 months from now in the broader economy, and that the stock market will have more (less steep) declines that look 6-12 months into the future for bottoming in economic conditions.

And I would say that the *current* environment is obviously deflationary and that the best you could do right now as an inflationary hedge would be to have some gold, since it does seem to be functioning as an alternative store of value and is the one thing other than the dollar which currently seems to be holding its value. I think that gold will go down as well, however, just not quite as fast as other commodities. I'm agonistic about inflation/deflation in the future and think that anyone paying attention will have adequate warning if inflation is going to re-ignite and don't see any signs right now that it is imminent. If GDP craters without falling wages, then I'll worry about hyperinflation -- and any economic recovery out of this bottom is going to hit inflationary headwinds since we immediately run into the problem synthetik outlined with too many people wanting to be middle class chasing too few resources around the globe. IMO, neither of those inflationary outcomes can happen in the next year though.

I think the inflationists are ultimately right in their analysis of lurking inflation, but at this point they're either suffering from the problem of being "too early" or in some cases they're the proverbial clock that is right twice a day (there's always lurking inflation and lurking deflation, and with a long enough time horizon you'll always be correct). Of course, I've been a perma-bear on the market and berma-deflationist since 2004, but hopefully I've learned my lesson about timing. I'm skeptical of a complete deflationary disaster, skeptical of hyperinflationary meltdowns, and just hoping to catch the next inflationary boom cycle when conditions change.

[WestSideBilly]

[lamont]