Buffett somehow gave the impression that he hated the gold medal and bonds. This is merely a misconception that the uneducated have formulated. The point that Buffett was trying to make was simple, money idol becomes money wasted. Gold represents a medium, a currency, a means of exchange. Buffett has no concern with his capital (his currency), he cares about his return, his gain. Idol principle is merely an obligation, because one must find another place to put it to good use (another investment). Buffett has returned to the basics of investing, the ideals that have made him successful. These same ideals made those before him millions and will make those after him billions. It is this idea that money should be used to make income and gain. Yes gold has had a gain for a time being, but is this sustainable like an industry like oil, which we are dependent on into the future? The answer is no, means of currency fluctuates over time, just ask those who bought gold at $250. My point is not to say gold, fixed income, or even storing money under your mattress has no purpose. Rather, my point was to bring at the ideals which Buffett was conveying in his statement, the basics of investing. It is these basics that led us astray in the past (look at 2008). Buffet was looking at the long term future of gold, where it would be in ten years. What he was doing was making the masses aware of the bubble, and by all means ride the bubble. Just make sure that stop is handy.
“Concentrate your energies, your thoughts and your capital. The wise man puts all his eggs in one basket and watches the basket.” – Andrew Carnegie
Investors and analyst as of lately are pushing the idea of markets being undervalued here and abroad. These barons of the market use the P/E ratio as one supporting pillar of their argument. This argument is an easy one to buy into due to its appealing story and the recent market uptrend. Though taking a look at the data, a different story unfolds.
During recessionary and recovery times we see P/E closer to 10 then 20. Those claiming that the market is undervalued due to the P/E ratio are misinformed. Taking it a step farther the “Great Recession” in P/E terms does not look to be a great anything, a more dramatic downside should be obvious through the statistics. The recessions of yesteryear had a greater effect on P/E for an extended time period. Comparing current times to those of the great depression (the only similar economic time in history) another pull back in the P/E may be due. To get to the point, the S&P may be dramatically overvalued contrary to what many of the leaders of finance say. The information above suggests a pullback rather then any further momentum upward.
“Stock market bubbles don’t grow out of thin air. They have a solid basis in reality, but reality as distorted by a misconception.” – George Soros
Obviously the auto industry in American is seen as a key to a better America. It just so happens that maybe auto makers are focusing their growth abroad, for example the “imported from Detroit” slogan. With GM earnings coming out recently and showing a loss of $700 million before taxes concerns should be raised. The growth of GM, Ford, and the list of many others hinges on Europe and abroad. Investors fail to realize that these markets are going to come under pressure in the near future. Europe is on the brink of a recession and if they enter into one many of these emerging market companies will follow. GM numbers this morning gave insight into the real situation in Europe and abroad. Many ma argue that the growth of the autos is far beyond Europe, but they fail to realize the repercussions a European recession will have here and abroad. The autos are telling the markets something and have been for a while, the U.S. recovery is threatened from abroad.
“It’s a recession when your neighbor loses his job; it’s a depression when you lose yours.”- Harry S. Truman
Many have lost sight of what drives an economic recovery. With all the focus on better unemployment and a better housing sector, everyone has forgotten the key to this puzzle, cheap gasoline. As the price at the pump continues to climb higher and higher things are looking worse and worse for the consumer. AS the price of gasoline increases consumers are adversely affected. The consumers that are most affected are those in the lower ends of the economy, consumers that we know are already having their pockets squeezed. These low end consumers are in such dire straights that they have switched their shopping from Walmart to dollar general, to save mere pennies. The American recovery is going to be built on the backs of all Americans, not just those that can afford to feed big SUV’s. Don’t expect a robust recovery until Americans can afford to drive to work.
“Not only our future economic soundness but the very soundness of our democratic institutions depends on the determination of our government to give employment to idle men”. – Franklin D. Roosevelt
With the markets never ending their surge upward, it makes you wonder. What the markets and the people with money in them fail to realize is this is not an easy fix in Greece or even here in the recovering U.S. One point that struck home over the past few days while watching the riots in Greece, is the expectation for the Greek people to change. The Greek people are expected to change their way of life, point blank. Now compare that to the your world. Ask yourself, could I take a 20% pay cut on top of minimum wage. Those reading this obviously don’t work for minimum wage, but that is a price decrease from $7.50 to $6.00. Imagine the effects that would have on our economy. What many fail to realize is that the Greeks no longer care about the “European Union” but instead care about themselves. The people that represent the masses, the politicians will do as the people want, and if they don’t they will find ones that do. Those in Greece are expected to live a new life inline with these guidelines that their neighbors set out for them. Though we may never get to the point when the Greeks are required to change their lifestyle (see them kicked out of the Euro), one thing is for certain, and that is they won’t.