Is Buffett Short the Dollar?

March 31, 2014

  • Bullish on America? Watch what Buffett does, not what he says
  • After weeks of sideways churn in stocks, Elmerraji draws a “line in the sand”
  • “HFT” makes it to 60 Minutes… Why you should curb your outrage
  • David Stockman on China heading toward “the economic edge of the planet”
  • The flip side of tax-prep perils… the Piketty wealth-tax touchstone, continued… a reminder where much of the “stimulus” money went… and more!

“The mother lode of opportunity resides in America,” wrote Warren Buffett a few weeks ago in his most recent Berkshire Hathaway shareholder letter.

“Indeed, who has ever benefited during the past 237 years by betting against America? If you compare our country’s present condition to that existing in 1776, you have to rub your eyes in wonder.”

None of this pabulum is any surprise — especially if you’ve been with us for a truly long time. When Buffett took part in the live-via-satellite expert panel after the debut of our national debt documentary I.O.U.S.A. — this was August 2008 — he declared he’d be the Pollyanna of the bunch. In that regard, he did not disappoint.

Then again, we too would have been sanguine on that night if 33 days later the Panic of 2008 had gone full-tilt… and we invested $5 billion in Goldman Sachs… in exchange for preferred stock yielding a 10% dividend. That’s among other financial-sector investments Buffett made that benefited from TARP and the other alphabet-soup bailouts.

Even so… consider the evidence that Buffett isn’t really as bullish on America as he says…

“Watch what Buffett does, not what he says,” said Jim Rickards today.

Mr. Rickards, author of Currency Wars and the new book The Death of Money, spoke in Melbourne at the “World War D” conference put on by our friends at the Australian Daily Reckoning.

Rickards today, speaking to a sold-out house in Melbourne…

What Buffett did in late 2009 belies his happy talk about the U.S. dollar — specifically his purchase of Burlington Northern Santa Fe, Mr. Rickards says. Buffett swallowed the railroad whole and took it private.

Think about it, Rickards said: A railroad is a collection of hard assets — the track, the surrounding land, the mineral rights to that land. Further, it’s a hard asset that moves other hard assets around — grain, steel, coal, crude. Especially crude — last year, Buffett bought a stake in Suncor, the big producer of crude in the Canadian oil sands.

So forget Buffett’s chirpy chatter: He’s insulating himself from paper money with real stuff, said Rickards. You should do likewise, and he explained how during his talk.

Other speakers at this event include author Richard Duncan — author of the prescient 2005 book The Dollar Crisis… and former banker Satyajit Das, who anticipated the Panic of 2008 and the eurozone crisis of 2010-11. What they see coming now will change your life for years to come. Are you ready?

Attendees forked over as much as $949 to be at this event in person… but you can get high-quality recordings of this critical briefing for a mere fraction of that price. Click here for access.

Stocks are in rally mode as the new week begins. Blue chips are lagging, with the Dow up half a percent. The small-cap Russell 2000 index is up well over 1%.

“1,850 is the line in the sand,” says Jonas Elmerraji of the S&P 500. This morning as we write, it’s up about 10 points, to 1,868.

Yes, the long-term uptrend going back to November 2012 — a chart Jonas has shared with us now and then — remains in place. But this morning, he has a more short-term view, going back six months.

If 1,850 falls, “then we can expect a more ‘snappy’ correction,” says Jonas — “much like the one we got in January. Momentum has been bleeding off, and the S&P has been forming a very short-term bearish descending triangle pattern.

“A shift from this sideways correction to another quick drop in the S&P will probably come with a lot of weak hands dropping stocks. That’s exactly the kind of environment that creates great buying opportunities. So we’ll look to buy the big index on the next bounce off of its long-term support line.”

Jonas’ elite readers rode the S&P’s February rally to 99% gains in five weeks. You can join them and be ready for the bounce right here.

“I call it legalized theft,” declares money manager and uber-blogger Barry Ritholtz. “High-frequency trading is a tax on investors, encouraged by the exchanges, allowed by the SEC.”

High-frequency trading — HFT to those in the know — now accounts for more than half of U.S. trading volume. It was introduced to Middle America last night on 60 Minutes. Author Michael Lewis of Moneyball and The Big Short fame is out with a new book all about HFT, called Flash Boys.

The HFT types “are able to identify your desire to buy shares in Microsoft and buy them in front of you and sell them back to you at a higher price,” Lewis explained. “This speed advantage that the faster traders have is milliseconds, some of it is fractions of milliseconds.”

Says Ritholtz: “Once the Securities and Exchange Commission allowed stock exchanges to share with traders all of the unexecuted incoming orders, it was hard not to make money by skimming a few cents or fractions of a cent from each trade.” Thus could an outfit like Tradebot go four years without a losing day.

If HFT tempts you to pick up your marbles and get out of the stock market altogether… forget it. There’s no point.

“There have always been insiders, unscrupulous dealers and some participants with unfair advantages over others,” writes Josh Brown at his Reformed Broker blog. The 1792 Buttonwood Agreement that formed the predecessor of the New York Stock Exchange was itself a shady arrangement among 24 speculators eager to shut down the shady arrangements of their auctioneer competition.

“HFT,” says Brown, “is just the latest in a long line of shenanigans and the moment you outlaw it or modify it or baby-sit it out of existence, there’ll be a new broad-daylight robbery format waiting right behind it.”

“An entire nation of 1.3 billion has gone mad building, borrowing, speculating, scheming, cheating, lying and stealing,” says The Great Deformation author David Stockman of China.

We see this morning the top five Chinese banks — accounting for more than half of all loans in the country — wrote down $9.5 billion in bad loans in 2013 — more than double the 2012 total.

“China has been on a wild tear heading straight for the economic edge of the planet,” Stockman writes at his Contra Corner website, “based on the circular principle of borrowing, building and borrowing. In essence, it is a giant re-hypothecation scheme where every man’s ‘debt’ become the next man’s ‘asset.'”

It’s not just the empty skyscrapers. China’s steel, cement, shipbuilding, solar-power and aluminum industries all suffer from massive overbuild.

“Once [China’s] asset values start falling, its pyramids of debt will stand exposed to withering performance failures and meltdowns. Undoubtedly, the regime will struggle to keep its printing press prosperity alive for another month or quarter, but the fractures are now gathering everywhere because the credit rampage has been too extreme and hideous.”

Gold is losing more ground as the week begins, now at $1,288.

We had no idea the tax-preparation industry was such a minefield.

Last week, we spotted a report at Accounting Web that asserted, “The threat of violence against professional tax return preparers is real.” The article cited four attacks during February, including a shooting at a tax-prep office in Detroit.

Now it turns out the preparers themselves are seen as dangerous parties — by the IRS.

The Laissez Faire Club’s banking adviser Doug French passes along this report from Accounting Today: “The Internal Revenue Service needs to do better at enabling its frontline employees to identify potentially dangerous tax practitioners, according to a new government report that found at least 84 taxpayer representatives who represented a threat to IRS employees and at least two instances of physical assault.”

Let’s see, that’s 84 “potentially dangerous” people in a universe of 2.3 million tax preparers in the IRS’ Centralized Authorization File.

Remarkably, the IRS is keeping its perspective. “While even one physical assault on an IRS employee is unacceptable,” says the report, “the population of taxpayer representatives generally does not pose an imminent threat or danger to our employees.”


[Ed. note: We know time is growing short and April 15 is barely two weeks away, but we still urge you to check out our special report, Vanishing Point: How to Disappear From the IRS This Tax Season and Save a Boatload of Money in the Process. The size of that “boatload” varies from person to person, but you could save as much as $20,000 by the time you have to file next year. Go here to learn how to download your copy.]

“The Piketty citation wave continues,” a reader writes.

Last week, we gave you a heads up about a book by a French economist advocating a global wealth tax and higher rates on the largest incomes.

The reader first passed along a Guardian article advocating an end to inherited wealth. Now he sends us a Huffington Post news item about an awful criminal case from Delaware and an evident miscarriage of justice. Seems a scion of the DuPont family named Robert Richards IV was sentenced to only probation for the rape of his 3-year-old daughter. The judge reckoned the man “will not fare well” in prison.

HuffPo noted Richards “is an unemployed heir living off his trust fund.” It then goes on to say, “News of the lenient sentence for the confessed rapist comes as a new book, Thomas Piketty’s Capitalism in the 21st Century, has put new focus on the distorting role of inheritance in the free market economy.”

Because once you’re three generations removed from the founder of an industrial giant, it’s inevitable you start molesting your own kids. Or something like that…

“So,” an annoyed reader writes on the related topic of taxing the rich, “you just throw out an off-the-cuff, unsubstantiated comment like, ‘But there were many more deductions, loopholes, etc., than exist today,’ and that’s supposed to prove your point.

“I found a graph published in The New York Times in 2007 that shows the average federal tax rate from 1960-2004 by various income groups. It shows (the percentages are my interpolations from the graph, since the raw numbers are not given): (1) For the top 1% = 45% in 1960 and 30% in 2004, and (2) For the top 0.01% = 70% in 1960 and 35% in 2004.”

The 5: You’re only reinforcing our point. The “1%” will always find a way to take care of themselves, whatever’s in the tax code. It’s the upper middle class that finds it increasingly hard to keep up.

But thanks for playing…

“The thing missing from the conversation,” another reader writes,” is what the tax revenue is spent on.

“Is it free handouts? Or is it infrastructure where the jobs returned tax money in the coffers and thus created a continuous building of wealth? The latter is totally unlike what is going on now. The only family spending high on a thousand hogs is in the White House, and none of that spending goes back into circulation into local and industrial economies.”

The 5: Well, yeah. As we pointed out some years ago, at least the New Deal gave us some bridges and dams. Most of the “stimulus” money in 2009-10 was funneled to state and local governments to stave off the firing of paper-pushers.


Dave Gonigam
The 5 Min. Forecast

P.S. “To meet manning requirements for cyberwarfare that will skyrocket in the coming years, the Pentagon will focus on recruiting and training people already in uniform, even those without any cyber background or knowledge,” reports the military newspaper Stars and Stripes.

The Defense Department’s Cyber Mission Force currently numbers 1,800. That number is set to leap to 6,000 by year-end 2016. That’s a 233% increase.

The investments set to prosper from the feds’ ramped-up cyber spending will likely jump even more… for reasons you’ll see right here.


Recent Alerts

Here Comes the AI Cartel

Maybe you saw the news earlier this week: An outfit called the Center for AI Safety issued a 22-word statement — as dire as it is terse. Read More

A Deal in D.C., a Wipeout on Wall Street

Debt ceiling deal, U.S. Treasury auctions, Wall Street liquidity, Fed policy reversal, BlackRock recession call, gross domestic income, GDI, Maryland license plate snafu Read More

Climate, Carbon… and Control

“The climate change agenda is not about climate change,” says Jim Rickards. “It’s about total political and economic control of the population.” Read More

White House’s New Witch Hunt

Go figure: The stock market is at nine-month highs, but the Biden administration is amping up its jihad against short sellers Read More

The Biden Bleed

Presidents have meddled with the SPR for political purposes. But Biden is really leveling up. Read More

Natural Gas Gets Blacklisted

The EPA — with Team Biden’s blessing — proposes an overhaul of U.S. power plants by 2042. Read More

Green Smokescreen

Ray Blanco is on the lookout for presumed do-gooders… blowing “Green Smoke” up our collective rear ends. Read More

“No Blood for Chips!”

Fair warning: This edition of The 5 might be the most controversial issue we’ve ever published. Read More

The Dollar’s Death March

Nine years after The 5 started writing about “de-dollarization,” you can’t get away from headlines about it now. Read More

The “F” Word

No sooner did G7 leaders sit down yesterday than they declared they’re doubling down on sanctions targeting Russia. Read More