In the 2008 financial crisis Warren Buffet famously made a bet on the US economy by doing one of his largest acquisitions at the time – purchasing a US railroad.
In the midst of all that chaos he saw opportunity and pounced on it. He believed that the US economy was the best on the planet and made a HUGE bet on it.
Today, he’s extraordinarily silent.
And, he’s done something that he said he doesn’t normally do – he’s sold large chunks of stock that is exposed to certain segments of the economy.
Its time to pay attention.
With his portfolio of companies he probably has better real-time data than the Federal Reserve. Data that can make him billions or cause him to hunker down because he’s about to lose billions.
If he didn’t see value in purchasing during the sell-off we just had, that should tell all of us something.
And, yeterday, the demand for oil was so low that oil prices for the front month of the NYMEX light crude oil contract was NEGATIVE. Not barely negative but $-37.00 negative. Basically, you were being PAID 37,000 dollars per contract to accept oil!
Which is just INSANE.
Demand for oil is a great predictor for the economy in general. No demand for oil means no economic activity.
Going Out on a Limb
With the collapse in demand across most industries, savings getting wiped out and consumer’s basically suffering from PTSD, I believe that investors and government officials are still underestimating the long term effects of this crisis.
Once the lock-down is complete, there will be a wave of demand for stuff that will cause a brief bump in earnings. But after that I think its fool hardy to believe that demand is going to stay up there for years.
Oh, that doesn’t mean that the stock market can’t move to all time new highs. With the amount of money being pumped into assets by the Federal Reserve, you don’t want to be the fool in front of that freight train.
But the stock market is not the economy.
And I think that earnings is going to be depressed for at least two years. Maybe much longer.
Stagflation a-la Japan is the best possible case for a while.
No matter how much money the Federal Reserve Banks around the world rain down on the masses…