Warren Buffett Dumps Bank Stocks And Buys Gold (#GotBitcoin?)
Warren Buffett’s Berkshire Hathaway sold bank stocks to buy a gold mining company, which will indirectly boost the price of Bitcoin, investors say. Warren Buffett Dumps Bank Stocks And Buys Gold (#GotBitcoin?)
Berkshire Hathaway, the $503 billion conglomerate led by Warren Buffett, sold Goldman Sachs for a Canadian gold company Barrick Gold. Max Keiser, the founder of Heisenberg Capital and an early Bitcoin investor, says it could help buoy BTC to $50,000.
The quarterly shareholder filing of Berkshire Hathaway shows Buffett trimmed his position on most major banks, Fortune reported on Aug. 15. The firm sold a substantially large portion of its shares in JPMorgan Chase, Wells Fargo and PNG.
What Buffett’s Decision To Enter A Gold Position Over Banks Shows About Bitcoin
Buffett’s decision to completely close Berkshire’s position on Goldman Sachs follows the bank’s second-ever highest quarterly trading revenue of $13.3 billion. It suggests Buffett is not comfortable in betting big on the banking industry in the long-term.
Instead, Buffett purchased a single stock in Barrick Gold, whose stock has reflected that of gold in most of 2020. The firm is a gold mining company based in Canada, which recorded a 45% increase year-to-date. Following Berkshire’s investment, the stock rose by 8.11% in after-hours trading.
Max Keiser, an avid Bitcoin investor who has invested in companies like Kraken and Bitfinex, believes Buffett’s gold investment could benefit Bitcoin. He said the positive sentiment around gold implies a higher valuation for Bitcoin, which some consider as “digital gold.” Keiser said:
“Global $100 trillion fund management biz is less than 1% invested in Gold. With Buffett now moving into Gold. Expect global allocation of 5% AU min. Implies $5,000 Gold. Expect a 1% BTC global allocation ($1 trillion). This implies $50,000 for Bitcoin Expect PTJ ups to 10%.”
A former L/S equities portfolio manager and Ikigai Fund founder Travis Kling echoed a similar sentiment. Referring to Buffett’s skeptical statement in 1998 around gold saying it doesn’t have utility, Kling said:
“Today it was announced Berkshire Hathaway just bought its first gold stock ever. The reasons are self-apparent at this point. Just in case you’re wondering what the coming years are going to look like for Bitcoin, this was Buffett on gold in 1998.”
BTC Has Shown Some Correlation With The Precious Metal As Of Late
Although Bitcoin has outperformed gold since April, the price trend between gold and BTC has shown some correlation. Data from Skew show the two assets have increased in tandem throughout the past four months.
The simultaneous rally of Bitcoin and gold since the global market crash in late March hints that more investors are starting to consider BTC as a store of value.
Most recently, MicroStrategy, a $1.4 billion intelligence conglomerate, purchased $250 million worth of Bitcoin. The firm said BTC would act as the company’s primary treasury asset, acknowledging Bitcoin as a store of value and a potential safe-haven asset.
Buffett Bought Gold, Will Buy Bitcoin: Morgan Creek Digital Co-Founder
Morgan Creek Digital’s co-founder believes that while Buffett himself is unlikely to buy Bitcoin, younger people working at his investment firm will.
Jason Williams, co-founder and partner at hedge fund Morgan Creek Digital, predicted that famous investor and business tycoon Warren Buffett will buy Bitcoin (BTC).
In a tweet shared on Aug. 15, Williams pointed out some of the most recent investment decisions of the American billionaire and predicted that he will end up buying Bitcoin.
Williams was referring to the most recent changes to the portfolio of Berkshire Hathaway, where Buffett is chairman and CEO. Fortune reported on Aug. 14 that the firm sold bank stocks alongside airline stocks and bought Barrick Gold, a Canada-based mining company whose stock price is correlated with that of gold.
Berkshire Hathaway sold Goldman Sachs stock, alongside cutting its position in JPMorgan Chase by 61% and selling some of its Wells Fargo and PNC holdings. The report suggests that Buffett may be anticipating increasing loan defaults caused by the coronavirus-related economic downturn, which could affect banks and their stock prices.
As Cointelegraph reported in May 2018, Buffett has been rather negative about cryptocurrencies as a whole. Notably, he said that Bitcoin is “probably rat poison squared.”
While Buffett’s past comments about crypto make his direct investment in Bitcoin seem rather unlikely, Williams believes that his multinational conglomerate holding company, Berkshire Hathaway, is likely to buy the coin:
“It’s the young managers and analysts that push the gold trade and BTC trade. He won’t even know it when it happens.”
As Cointelegraph reported on May 15, Max Keiser — the founder of Heisenberg Capital and an early Bitcoin investor — suggested that Buffett’s investment in gold could push Bitcoin’s price to $50,000.
He suggested that positive sentiment around gold implies a higher valuation for Bitcoin:
“Global $100 trillion fund management biz is less than 1% invested in Gold. With Buffett now moving into Gold. Expect global allocation of 5% AU min. Implies $5,000 Gold. Expect a 1% BTC global allocation ($1 trillion). This implies $50,000 for Bitcoin.”
ETF’s Backed By Gold Are Growing At The Fastest Rate On Record
Surge in precious-metals prices this year comes alongside rising exchange-traded-fund purchases and increased volatility.
The 2020 gold rush in markets is starting to unnerve even some longtime fans of precious metals.
Gold futures are near records and up about 28% for the year, while silver has more than doubled since hitting a multiyear low in March. The moves aren’t entirely surprising, given the scale of the coronavirus-driven economic shock and the countervailing global stimulus led by governments and central banks.
Many investors fear economic stagnation, an outbreak of inflation or some combination of the two—a recipe for rising demand for metals viewed as a store of value in trying times.
But with the rush into gold has come an increase in volatility that many traders don’t welcome. Both metals have dropped about 6% or more from peaks hit this month and are recording bigger daily swings than normal, suggesting that gold and silver have joined U.S. tech stocks among the most crowded trades in markets—creating the risk that months of outperformance could vanish in a day or two of frenzied selling should market or economic conditions turn.
“Almost everybody is talking about gold.…That is a warning signal in a way,” said Luca Paolini, chief strategist at Pictet Asset Management, which is holding more gold than its market benchmark but may sell some if volatility continues. “At least until the election in the U.S., this volatility will persist.”
Some traders blame the increasing popularity of exchange-traded funds that afford both retail and institutional investors cheaper, easier access to commodities such as gold, silver and other metals.
They say that while ETFs such as the SPDR Gold Shares Trust marketed by State Street Global Advisors have been part of the market landscape for more than a decade, the surge in ETF buying of gold and silver stands to accentuate price swings, potentially intensifying the boom-bust cycle often seen in these and other commodities.
“Because of the very high interest in ETFs by retail investors, you might see swings that you haven’t in the past,” said Ellen Hazen, a portfolio manager at F.L.Putnam Investment Management, which bought gold through an ETF in March. Still, she believes the metal offers an effective long-term hedge against inflation.
ETFs backed by gold are growing at the fastest rate on record and have raked in nearly $50 billion this year, well above the previous record for annual inflows, according to the World Gold Council. Assets managed by the SPDR Gold Shares and iShares Gold Trust have risen 60% this year, while smaller ETFs such the GraniteShares Gold Trust are growing at an even quicker pace.
Investors tend to put money in metals when they are nervous about the economy and believe inflation will rise faster than interest rates. Climbing inflation reduces the dollar’s purchasing power, meaning it takes more dollars to buy the same amount of metal. Low interest rates make the metals, which don’t offer holders any regular payouts, more appealing relative to income-generating assets such as safe bonds.
Low inflation-adjusted interest rates also have lifted stocks by making bonds less attractive, pushing many investors to take on more risk in equities. The trend explains how gold and stocks rallied in tandem for months, with the S&P 500 hitting new records last week.
Gold has averaged a daily move of 1.2% over the past five weeks, nearly double the typical swing since the start of last year. Silver is moving nearly 4% a day on average, roughly triple its normal daily change.
The metals also have fallen sharply on certain days, without obvious explanation—a sign in the view of many market participants that speculators are becoming a larger proportion of the market. On Aug. 11, gold slid about 4.5%, while silver fell 11%. And last Wednesday, both metals dropped roughly 2%.
Many precious-metals ETFs are backed by physical gold and silver, but many traders say inflows and outflows also affect the futures markets because the ETFs have gotten so large that they represent a large chunk of investor demand.
ETFs backed by physical gold held about 3,620 metric tons at the end of June, World Gold Council figures show, more than any country other than the U.S. Silver ETFs also represent a sizable portion of investor demand. With physical demand for jewelry and bars and coins falling, ETFs represented about 40% of global gold demand in the second quarter, up from 6% in the same period a year earlier.
When individuals buy shares of an ETF that is backed by physical gold or silver, they are buying a stake in a trust. The asset held by that trust is metal.
One of the ways traders make a market in the ETF—typically banks and other traders such as Virtu Financial Inc. —is to buy physical metal from traders on the open market, typically from banks, such as JPMorgan Chase & Co. and HSBC Holdings PLC, that commonly trade precious metals.
As a result, large inflows signal that the metals are in high demand from global investors, a trend that then helps dictate sentiment in the futures market. The traders selling to the ETF traders might also seek to hedge against a price increase by purchasing futures contracts, creating another link between ETFs and metals prices.
The trend can work the opposite way when money flows out of the ETFs. When precious metals tumbled alongside stocks back in March, traders said the fall was generally due to investors pulling money out of haven metals to raise cash, and outflows from ETFs helped make the declines in gold even more severe.
“I really believe this is pure speculation,” said Campbell Harvey, a Duke University finance professor who has argued widespread use of gold ETFs can cause prices to overshoot market fundamentals. “There are some people playing the momentum trade…If there is a turning point, they’re going to be crushed.”
Warren Buffett Indicator Signals A Stock Market Crash Is Coming
A sell signal is flashing on Buffett’s favorite indicator.
Warren Buffett once wrote that investors would have seen the dot-com crash coming from a mile away had they paid attention to what he described in a Fortune article in 2001 as “probably the best single measure of where valuations stand at any given moment.”
Known in investing circles as the “Buffett Indicator,” the measure is simply the total market cap of all U.S. stocks relative to the country’s GDP. When it’s in the 70% to 80% range, it’s time to throw cash at the market. When it moves above 100%, it’s time to lean toward risk-off.
Apply that yardstick worldwide, and, as you can see by this chart from Die Welt market analyst Holger Zschaepitz, a sell signal is flashing. In fact, the indicator just broke through a 30-month high:
Over the past two decades, global markets have taken big hits on three occasions after the ratio broke into triple digits — In 2000, 2008 and again in 2018.
Meanwhile, drilling down into the market in the U.S., where stocks are holding up strong in the face of the coronavirus pandemic, shows the indicator is up in all-time record territory.
As for Buffett, he’s been much more active of late, having faced criticism for his lack of maneuvering during the coronavirus meltdown. Still, Berkshire, despite ramping up buybacks and building its position in Bank of America, sits on $146.6 billion in cash.
Buffett Dumps Wells Fargo Amplifying Bull Case For Gold And Bitcoin
Warren Buffett and Berkshire Hathaway cut their position on Wells Fargo as the bet on Barrick Gold and rising inflation fuel the bull case for Bitcoin as well.
Warren Buffett and Berkshire Hathaway substantially cut their position on Wells Fargo, selling 100 million shares. The Oracle of Omaha is continuing to trim his position in bank stocks, buoying the bull case for gold and Bitcoin (BTC).
Berkshire reportedly held $32 billion in equity in Wells Fargo at one point, Fox Business reported on Sep. 5. The investment conglomerate now owns 3.3% in equity of the lender, worth just $3.36 billion.
Why Did Buffett Cut Wells Fargo And How Could It Benefit Bitcoin?
Throughout his career, Buffett emphasized the importance of value investing and cash flow. The investor typically prefers businesses with predictable and stable operations that result in consistent profitability.
In July, Wells Fargo posted a $2.4 billion loss, recording its first loss since the 2008 housing crisis. Following the disappointing quarterly report, the company said it would cut its dividend to 10 cents per share.
This month, Moody’s cut its rating from stable to negative, citing the slow process to overhaul its governance. Allen Tischler, a Moody’s analyst said:
“The outlook change reflects Wells Fargo’s slower-than-anticipated pace in resolving its legacy governance, oversight, compliance, and operational risk management deficiencies. The slow pace weighs on its expense base, further undermining its earnings potential against the backdrop of challenging operating conditions.”
The confluence of the quarterly loss, the dividend cut, and the downgraded outlook likely led Buffett to trim his position.
But the persistent theme in Berkshire’s portfolio reshuffle in recent months is its investment in Barrick Gold. While decreasing its exposure to the U.S. banking sector, Buffett invested in gold and Japanese trading companies.
The decision shows that Buffett is seeking safety in terms of cash flow and a hedge against inflation. The Barrick Gold investment fuels the bull case of Bitcoin because the perception of BTC as a store of value is improving, especially given the tight correlation between the two since the March 2020 crash.
BTC Would “Cannibalize” Gold In The Future, Says Winklevoss
Other notable investors, including the Winklevoss twins, believe Bitcoin as “digital gold” would compete against gold over the long term. Specifically, its immense upside potential makes it an attractive investment since BTC market capitalization is still roughly only 1.5% of gold.
Cameron Winkelvoss, the co-founder of Gemini, said Bitcoin already made significant ground on gold. He said:
“Bitcoin has made significant ground on gold — going from white paper to over $200 billion in market capitalization in under a decade. It will continue to cannibalize gold dramatically over the next decade.”
As Cointelegraph Markets reported last Monday, Wall Street veteran and host of the Keiser Report, Max Keiser, believes Buffett exiting the dollar is a bullish signal for the price of gold and Bitcoin.
“Buffett’s move into Japan, along with his gold investment, confirms he’s getting out of USD bigly,” he said. “Bitcoin – Gold – Silver Will all make new ATH in the near term.”
Buffett-Led Boom Proves Short-Lived For Most Japan Trading Firms
A share-price surge in Japan’s trading houses’ triggered by Warren Buffett’s $6 billion investment is already fading, due to a lack of fresh catalysts and a downturn in commodity markets.
Shares of two of the five “sogo shosha” — as the commodity-centric Japanese conglomerates are called — are now trading below levels before Buffett’s Berkshire Hathaway Inc. announced its stake purchase. The August announcement, among the largest-ever investments by Buffett in Japan, not only sparked a rally in stocks, but also boosted overall investor interest in the trading companies.
The failure of share prices to sustain the higher levels despite Buffett’s vote of confidence highlights the challenges faced by the shosha as the coronavirus pandemic erodes demand for commodities.
It also speaks to the challenges for a Japanese equity market heavily weighted toward so-called value shares, with the benchmark Topix Index on track to lag the MSCI AC World ex-Japan Index for a fifth straight year in 2020.
Berkshire announced on the last day of August that it had bought stakes of about 5% in each of Itochu Corp., Marubeni Corp., Mitsubishi Corp., Mitsui & Co. and Sumitomo Corp. That saw shares of all five firms jumping, with Sumitomo gaining more than 9% on the day.
As of Monday, Itochu and Sumitomo have given up all their gains since the announcement. Only Mitsubishi remains substantially higher — with a 8.5% gain since, versus a 2.4% advance in the Topix index in that period.
While Brent oil has recovered since the lows in April, prices have languished near $40 per barrel amid concerns of a global oversupply and lackluster demand recovery. Upstream giants have slashed their workforces as the pandemic persists, with some in the industry believing the era of demand growth is already over.
Dozens of liquefied natural gas export projects are seen delaying investments in the wake of the demand slump caused by the virus and as Europe intensifies its call for decarbonization.
“You have to separate the trading houses into winners and losers,” said Hiroyasu Nishikawa, an analyst at Iwai Cosmo Securities Co. “Among the winners, like Itochu, investors are waiting for fresh news and for earnings,” after the company gave a very conservative guidance, he said.
Nishikawa also counts Mitsui and Mitsubishi among the winners, while he expects Sumitomo to continue to struggle until the next fiscal year, having taken writedowns and warned of its worst annual loss on record.
That said, a drop in share prices could, if anything, bring Buffett — famed for advising investors to be “greedy when others are fearful” — back to buy more. Berkshire has said that it could raise its stake in any of the five companies up to 9.9%, “depending on price.”
While Buffett’s intentions were unclear, Itochu, Mitsui and Mitsubishi are the prime candidates if Berkshire was to lift its stake in some of the firms, SMBC Nikko analyst Akira Morimoto wrote in a report on Sept. 30, citing inflation hedging and the securing carry trade spreads as the reasons.