Beware false idols

“Playing with expectations works temporarily. The risk-on trade is in a mini bubble, as today’s buyers want to be ahead of the slower ones. The buying trend is sustainable only if the global economy strengthens, which is unlikely. The stocks aren’t cheap. Desirable consumer stocks are selling for 20 times earnings. Banks are cheap for a reason. Internet stocks suggest another bubble in the making. The Fed is trying to inflate an expensive asset. The rally, hence, is quite fragile. As soon as a shock like Greece defaulting or bad economic news unfolds, the market will quickly head south.”

 

-       Andy Xie, ‘A world flying blind’.

 

For value investors of a certain age (e.g. mine), discovering that Warren Buffett has feet of clay is like suddenly not believing in Father Christmas. This twinkly-eyed, raspy-voiced, avuncular old gentleman almost embodies Clint Eastwood crossed with a Care Bear. And nobody can hold a candle to his long-term investment record. And yet.. The rot set in (at least as far as this writer is concerned) when Buffett went from investing in private non-financial businesses to siding with the establishment, using his institutional heft to win sweetheart deals in dubious banking institutions way beyond the reach of regular Joes. In other words, somewhere along the line he went from representing the 99% to representing the 1%. And at the first sign of trouble, he simply wraps himself up in the American flag.

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Comments

[Chrisclothier]

Thanks Tim for, as always, an interesting article. I quite agree with you on government bonds. Does your dislike extend as far as index linked gilts? On the one hand they seem just as pricy as gilts on the other we do seem likely to be in for a sustained bout of inflation. Cheers C

[timprice]

I can see the rationale for index-linked debt. But since I distrust most of the governments in question that issue them, I'm not sure I could bring myself to trust that they will respect the terms under which they are issued. Gold, on the other hand, is a truly stateless and apolitical asset.