Warren Buffett announced that the cash hoard for Berkshire Hathaway was at $168 billion. He also reportedly said that there were no opportunities outside of the U.S. that are currently under review, and that there were no opportunities in the U.S. that could “move the needle” for Berkshire Hathaway that were attractively priced. Game over.
As I and many others have pointed out over the years, the dollar is based upon debt. It makes no difference whether one holds Treasury securities or just simply a dollar bill, the latter effectively being a zero coupon, perpetual Treasury. Same “full faith and credit” behind all of it.
Buffett’s genius was to generate massive amounts of cash (debt) and exchange it for equity in the form of real, productive assets over many decades. According to him, that is no longer currently possible. His problem is only going to become more acute as the massive pile of cash grows. He is now one of the biggest bag holders of a rapidly depreciating asset, and no place to go with it.
His father was a devotee of sound money. Buffett also accumulated a great deal of silver early on, but correctly switched out of it into productive assets.
There are only two kinds of assets, debt and equity. Even commodities are a form of equity. The chart below is pretty shocking.
The allocation to commodities is barely visible despite the fact that the fundamentals for commodities have never been better. The world is coming up to a brick wall called supply at a time when demand continues unabated.
So what are people going to do with their money, including Buffett? The supply of commodities is miniscule compared to the amounts invested in traditional equities and fixed income. The chart also does not reflect commercial real estate which is currently imploding.
People with large sums of money have tried super-yachts. That did not work out well for some. The yachts that were not confiscated face astronomical maintenance and operating costs. Money went into artwork and other collectibles. Farmland has been an active market of late. All of these tend to be overpriced, some spectacularly.
Commodities and crypto currencies are the obvious choices. The problem is that the available supplies are miniscule compared to the potential demand for investors wanting to get out of depreciating fiat currencies and fixed income.
While we are seeing a stampede into Bitcoin, I believe the stampede into the precious metals is close at hand. Just as we have seen in Bitcoin, once the stampede takes off, you get parabolic price movements.
Yes, I and others have been calling for this longer than I care to contemplate. That said, I do believe the Fed and their brethren as well as Congress have finally lost control (really going out on another limb! 😀). Expect chaotic markets and dramatic price increases for oil, precious metals, and crypto currencies.
The herd is sniffing the wind. Buffett knows it. Jamie Dimon knows it. The stampede is just around the corner.