Warren Buffett just bought a gold stock.
During the second quarter of 2020, Buffet purchased $20 million worth of Barrick Gold (GOLD).
This is remarkable because, for his entire career, Buffett has cautioned against buying gold and other precious metals.
Combine this with the fact that he sold a lot of his bank stocks (which typically perform well in a sound market), one should begin to suspect that he has looked out into the future and simply does not like what he sees.
He sold an enormous amount of Wells Fargo (WFC), a bank he has held for decades…
All of his Goldman Sachs (GS) shares…
And he sold over 60% of his stake in J.P. Morgan (JPM).
Sure, to hedge his bank exit a bit, Warren dramatically upped his bet on Bank of America (BAC) by $2 billion. But given that he sold close to $7 billion worth of other bank shares, it is still a pretty bearish position being taken by the Oracle of Omaha.
This Time is Different
In previous market corrections, Buffett typically poses as an enthusiastic buyer of stocks. It’s what him and Charlie Munger do. They collect cash, patiently wait for bad markets, and purchase quality businesses at a discounted price.
But this time around they have been very quiet.
Berkshire did add to a few positions in the quarter like STORE Capital (STOR) – a triple net lease REIT, Suncor Energy (SU) – a Canadian integrated energy company, and Kroger (KR) – the large grocery chain.
However, he sold four companies for everyone he bought, and the dollar volume of the sales overwhelms that of the purchases.
He has not been on CNBC much this time around talking about the quarter and stocks he has been buying and selling. And there has been no letter to the New York Times (NYT) or Wall Street Journal, urging us to buy stocks at the current bargain prices.
What does it all mean?
I don’t have Warren’s personal number, and I have never been able to get through the Berkshire Hathaway switchboard to ask him questions. I don’t know what he is thinking this time around.
But one thing we do know for sure is that this crisis is different. Berkshire has not been a buyer of stocks even after they fell 40% in just a few days.
I wonder if perhaps he and Charlie have been having conversations like the ones we have been having lately…
Ask yourself what happens if the Democrats and Republicans keep arguing and posturing and unemployment benefits are not extended. Ask yourself what will happen when one-third of all renters in the United States don’t pay rent even with extra cash.
How much higher does that figure go if there is no cash getting to people who do not have jobs?
By the way, I am not commenting on whether we should have shut down and paid extra benefits. That’s a conversation for another day. However, now that we have chosen that path, we have to stick with it, or people will go from worried to being in deep s**t.
What happens when all the mall operators start filing bankruptcy?
Getaway cities like New York, San Francisco, and Seattle are seeing the beginning of a massive exodus. When all those offices and apartments are empty, how will the mortgages get paid? What does that mean for the banks that issued the mortgages?
Small business was once the engine of job creation in this country. The pandemic has destroyed a lot of small businesses, and they will not be back anytime soon. A lot of jobs are gone forever.
There is nothing the Fed or Congress can do to stop a virus from spreading. In past market crises, there were steps the Fed could take that would make things better.
Liquidity can fix a financial problem. Liquidity does not fix a health crisis.
I know stocks have recovered and gone to new all-time highs as a result of all the cash the Fed has pumped into the markets this year.
I also know that gold is soaring, the dollar is falling, the economy is slowing, and the virus that caused all this continues to spread.
I know that something like 28 million people are receiving some form of unemployment benefits in this country, according to Lydia Boussour, senior US economist at Oxford Economics.
If we get a vaccine tomorrow, there will still be millions of jobs missing. People will not return to the cities after months of virus concerns coupled with rising civil unrest.
Perhaps Warren is asking himself some of these questions and concluding that betting on the broad future of the United States is badly mispriced right now.
There are pockets of opportunity, but as Nassim Taleb pointed out not too long ago, if you are investing in the markets right now without a small portion of your cash in a black swan strategy, you are taking insane risks in a wildly uncertain world.
– Tim