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Warren Buffett ready for a stock market crash with a record $49bn in cash

Posted on 22 May 2013 with 10 comments from readers

It’s always important with the world’s top investors to follow what they are doing rather than what they are saying. For example this week ArabianMoney flagged up an investment by George Soros in a risky call option on GDXJ, the junior gold miners ETF, at a time when the headlines said he was abandoning gold (click here)!

Now let us turn our attention to the Sage of Omaha. He may have stocked up on Heinz beans recently but the reality is that Mr. Buffett has a record $49 billion in cash. Talking positive, acting defensively? That’s pretty obvious when you think about it.

Perverse investors

There’s an article on global investment sentiment in The Daily Telegraph today. It highlights the fact that the same investors who are pushing stock markets to record highs are actually all expecting either stagnation in the economy or another recession. Hardly bullish.

Mr. Buffett has also wisely commented that all it would take for markets to reverse would be the slighted hint from the Fed that its money printing is going to end. Will Ben Bernanke say something soon to stop this runaway asset price bubble that we see in the Us stock market and copied all over the world?

Bubble trouble puts the Fed in a quandary. Damned if it lets a bigger bubble inflate. Damned if it brings the current one back down to earth. The Fed might just need to do this now to get the investment world back into the realms of reality.

Fed message

Of course, it would then have to reverse course again after a stock market crash to stop the world falling apart. But the message would have gotten home. Stocks are no win-win when the US economy is barely expanding and the rest of the world is slowing down.

The market climb back up would be against a steeper wall of worry than we now face which everybody assumes is a one-way bet. That would not worry our old friend the Sage of Omaha with his cash mountain.

As we saw in 2008 when Mr. Buffett even managed a nice turn on the rescue of Goldman Sachs the old boy knows how to play a crash brilliantly. Then again you can only do this if you have the cash to do it. He has it and would the world’s greatest investor be sat on cash if he really thought there was more money to be made in stocks?

Posted on 22 May 2013 Categories: Banking & Finance, Bond Markets, Global Economics, Sovereign Wealth Funds, US Stocks

10 Comments posted by readers:

Comment by tina helmuth - 22 May 2013

but if it’s in cash, and something happens, it would be worthless

Comment by Frank - 23 May 2013

tina, if the dollar somehow survives Buffett would make a killing by buying stocks at extremely low prices. However, you may be right I fear.

Comment by Wizard of Oz - 23 May 2013

And when the stock market is at rock bottom what do you think good old Warren will do? He will buy stocks again. Ready for the next cycle.
What else is relatively cheap now? Guess what?
If you have not bought physical gold and silver yet , you should do so now. The “system” is currently still trying to maintain the impression of “normality”. Jim Sinclaire: “The world has taken on a “virtual reality” with no reference to what really is. This is the biggest market power play of smoke and mirrors in history. It is happening because the financial system is in a terminal state of broken.” Because of the depressed gold and silver prices it is also important to diversify your portfolio. Just to rely on physical gold and silver is not enough. You need to buy gold and silver junior mining and exploration companies right now. They are still dirt cheap. Once gold and silver prices go up the share prices of these companies will go up 10 to 100 times of where they are now. More infos on http://www.lunaexpress.de

Comment by rick - 23 May 2013

I don’t think they will crash the dollar just yet. They have trillions (on paper) of people retirement money to steal first. They will use the crisis for bail-ins to squeeze that last bit of money out of peoples hands and into the TBTF banks and then use that capital to set themselves up with PM and real estate assets which will be the only thing that survives as value in the end.

And do you really think the fed has any exit plan on QE? No way, they are done, out of ideas and out of money and out of people to sucker into buying debt… That is why they are already buying third own debt. No, interest rates can’t even go to 1% without crashing the stick market and the TBTF banks. They are done… Now it is just a matter of how long they can keep the charade going.

Comment by Review - 23 May 2013

If you look at Berkshire’s Q1 2013 balance sheet you’ll see that, quarter on quarter, Berkshire’s equity allocation increased versus cash so I’d say the article above is actually quite misleading. Yes, their cash balance was up USD2.1 billion to USD49.1billion, but their equity security balance rose by USD9.4 billion. Put simply, in absolute and percentage terms, their current exposure to equities has increased from Q4 2012 levels.

Comment by Brett - 02 June 2013

He’s gearing up to buy real estate. Remember BOA stock purchase?

Comment by George - 04 June 2013

Buffet has a larger stock holding base from 2012
because stocks have gone up in 2013. He holds
for the long term and got alot of those stocks in the
70s. Meaning if the dow droped 50% he is still up 1000’s
of percent. So review you sound paniky..Put options can give
your portfolio some insurance if you need it to sleep.

As for gold and silver Buffet does not invest in stamp or hockey
card collections. For those holding for the end of the world, water
oganic seeds and bullets make better arguments.

Comment by Ken - 11 August 2013

There’ll be a run on the banks this time round. It”ll be political TNT to bail out the fat-cat banks with so many voters going to the wall. So don’t keep too much cash in the banks, folks! Remember Cyprus? Hmmmm. And as for the recovery after the next crash, think the 30’s.

Comment by jb - 19 October 2013

i think u will see crash begin march 2014 and this one will be quicker than last will go for around 8 months till October same year , but we still haven’t reached top yet most would have begun shorting stocks at the 14000 level on the Dow but they will all be surprised and majority have there stops hit , i believe it will hit the 17000 level by march and that will be the beginning of a massive correction as we all know the economy is not doing that well and it is Ben Bernanke who has falsely pumped U.S markets up ,this is just my opinion!

Comment by abc - 25 October 2013

YOu people still think gold is good? until india cuts its restrictions on gold imports gold will continue to tank. Any rise in gold sell it off. If you think world coming to an end your just in with other conspiracy theorist for last 100 years betting against the usa and losing tons of money. if gold sinks to around 1000 to 1100 then you slowly buy into it but right now its to high. The stock markets to high. HOld your cash and wait for a crash either in gold or stocks if not play it safe and stay out of investing unless in food commodities.

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