The Sage of Omaha has spoken. On Fox News yesterday Warren Buffett dismissed the possibility of an interest rate rise in the middle of this year. To paraphrase this multi-billionaire, the global economy is too weak to allow it to happen: money would flow from Europe to the US disrupting the delicate balance of a global economic slowdown.
The signs of the slowdown are only too obvious if you care to look around: the slumping price of oil, iron ore and copper; falling US and Chinese order books; monetary policy easing by 13 central banks; the uneasy sight of the UK as the world’s best performing economy in a deliberating engineered pre-election boom set to end shortly after May 7th; and disappointing Q4 US economic growth.
All these indicators are harbingers of the next global economic recession which has probably already started. With these headwinds the US will do well to maintain its present lacklustre momentum in the worst economic recovery in its two-century history. How can the Fed possibly raise rates this summer or anytime this year?
So that probably means that the US dollar is also already past its peak valuation for the year. Twas ever thus. When everybody is on the bullish side of a trade it has nowhere else to go but down. If dollar interest rates are not going higher why would you want greenbacks or US treasuries?
Warren Buffett told Fox News that the 30-year treasury is the asset he would least like to hold in the world. Quite an indictment from the world’s most successful investor.
What will be the major beneficiary of a weakening US dollar? There seems to be something of a rush to buy European stocks at a seven-year high so far this year. Spot another doomed consensus move. Do you really want to invest in an asset class at an all-time high just before a major recession?
Wall Street crash
Equities will not defy gravity forever in this environment. Profits will come down across the board and share prices will fall. What’s going to be the catalyst? The tie-free Greek finance minister? An all-out assault on Kiev? A banking crisis in China? A hedge fund failing due to oil price losses?
That leaves precious metals as the one safe haven left in town. Gold bottomed out at the end of last year along with silver and the monetary metals are on the way back up. The next 18 months to two years could see precious metals back as the last great bubble before a global currency reset.
Warren Buffett has avoided investing in precious metals thus far but he is avoiding US treasuries and sticking to US equities that will protect him from hyperinflation. He doubled his money on silver in the late 90s and perhaps that is where he ought to be putting his money right now.