
Maybe Warren Buffett Is Warning Us About Something - joshuafkon
https://www.bloomberg.com/opinion/articles/2019-08-26/maybe-warren-buffett-is-quietly-warning-us-about-stocks
======
hacknat
It’s important to remember that the stock market != the economy. You know who
would be the first to say that? Warren Buffet.

Warren Buffet is actually a big believer in _not_ making macro economic
predictions. It just so happens that if you pick stocks like he does (based on
fundamentals and a certain proprietary “discount”) you’ll probably avoid
having your investments tagged in a recession.

Stocks in the Great Recession took a nose dive because of a market downturn,
not the other way around. It is very possible (and much more common) for
stocks to dip significantly and for the broader market economy to shrug its
shoulders and say, “meh”.

We have familiarity bias though, so we think that the next one will look like
the last one. Pro tip: it won’t.

~~~
mywittyname
Additionally, the article doesn't really discuss how much cash he's holding
relative to previous years.

[https://www.macrotrends.net/stocks/charts/BRK.B/berkshire-
ha...](https://www.macrotrends.net/stocks/charts/BRK.B/berkshire-
hathaway/cash-on-hand)

~~~
adventured
Your reference material is incorrect (it doesn't understand how to assess cash
& cash equivalents properly).

Berkshire Hathaway's cash position was sitting at an all-time high of $122
billion as of early August. Your source claims $44 billion. Buffett will be
distraught to find out $78 billion in cash is missing.

"The result was that the company’s cash hoard -- a major focus for investors
in recent years -- surged to a record $122 billion."

[https://www.bloomberg.com/news/articles/2019-08-03/buffett-s...](https://www.bloomberg.com/news/articles/2019-08-03/buffett-
s-cash-pile-hits-record-as-berkshire-holds-122-billion)

For further reference here is a chart of Berkshire's cash going back to 1996
from Reuters:

[https://i.imgur.com/VzrG8lP.jpg](https://i.imgur.com/VzrG8lP.jpg)

~~~
mywittyname
I think conflating bonds and cash is misleading for this purpose.

------
digitalsushi
I have no idea how money works.

I have a 401k, it's got more in it than the median 60 year old in the united
states, and I'm 20 years from that.

And I am terrified of how little I know about how it exists or survives.

I read these articles and get a sense of overwhelming urgency that, without
any explicit indication, I should do something with my nest egg to make it
safer to survive a crash.

And then I keep reading, "don't touch it" when I go to read about what I
should do.

So I sit here, not doing anything at all about it, crippled with dread.

What's the best strategy for someone like me, who has absolutely no idea how
their retirement account exists?

~~~
ravenstine
I'll tell you something that nobody wants to admit to:

 _Nobody really knows how money works._

The average 401k holder has one _because_ they don't have a good idea of how
money works or what they should do with it. If they really understood their
401k, they'd know that they're probably getting ripped off in fees over their
lifetime.

If economists and financial analysts completely understood money, they
wouldn't be in such disagreement all the time over basic things. A financial
advisor might tell you to leave your money in a 401k, and the next one might
tell you the same, but it's not that hard to find one who will tell you to get
your money out of your 401k ASAP for a variety of reasons.

At the end of the day, you have to trust your own judgment. People don't get
rich doing the easy thing.

By the way, here's some things you should think about with 401ks:

\- Someone with an average salary pays $138,336 in 401k management fees over
their lifetime. Not only are you the _only_ party taking a risk, but you're
getting _charged_ for taking that risk. Advisors and broker dealers aren't
risking anything except your money.

\- You don't own the money in your 401k. Read the fine print and you will find
"FBO" (For Benefit Of). The tax code makes it technically owned by the
government, but provided for your benefit. In a crisis, the government can
confiscate any amount of your 401k to pay off debt and pensions.

\- 401k teaches people to cluelessly invest. Do you know if your money is
being invested in big tobacco or big oil?

\- The government has the advantage with your money. Because you can't cash
out without penalties, when you die, whatever's left over for your children is
not only subject to income tax but to _estate tax_ as well. They want your
401k money to be gifted to someone else because that means they don't get to
cash in on your pile of money.

~~~
MrRadar
To address your points:

* Yes, 401k plans usually have high fees, however the tax advantage they provide should more than offset those fees except for the very worst plans. And there are exceptions too: some 401k plans offered by very large companies actually have lower fees than popular low-fee IRA providers.

* When you say "get your money out of your 401k" are you referring to moving it to a low-cost IRA or cashing it out? The former is good advice if you have a 401k from an old job (that is not one of the aforementioned "very good" 401k plans). I don't think there are any reputable financial advisors that would suggest straight-up cashing out a 401k before retirement due to the taxes and penalties. The only circumstance I can think of where that would make sense is if it was necessary to avoid homelessness or pay for necessary medical care and you had already run through your non-retirement savings.

* You absolutely do "own" your money in your 401k as much as you own shares in a brokerage account or deposits in your bank account. If we're at the point where the government would confiscate funds in 401k accounts instead of just issuing new debt then the economy has probably already collapsed to a point beyond recognition.

* Your point about "clueless investment" is a critique of mutual funds and index funds not 401k plans. Someone holding an S&P 500 index fund in their IRA or brokerage account is no smarter than someone holding that fund in their 401k. Additionally, history has shown time and again that the only thing you can say with certainty about the stock market is that its aggregate value increases on average over time. The average person attempting to pick stocks, even at the sector level, is a recipie for them to miss out on the gains they need to have sufficient funds for their retirement.

* Your point about estate and income tax: and having the money in any other form would do what? You need to pay income tax on funds drawn from a (traditional) 401k plan because you deferred the tax when you deposited the funds. Whether you or your heirs are drawing the funds is immaterial in that aspect. If you have funds in a Roth 401k or Roth IRA or a regular brokerage you have already paid the taxes and as such you will not be taxed on withdrawls (except capital gains from brokerage accounts).

Similarly for the estate tax, if you had the money in cash at time of death
you would still owe the same amount. On top of that, you'll be dead! What do
you care what happens to the money after you're gone? Not to mention you need
literal millions of dollars of assets upon death to get hit with the estate
tax in the US so this will only apply to the literal 1%.

~~~
vonmoltke
> Yes, 401k plans usually have high fees

I haven't seen these "high fees" in any of the five 401k plans across 4
providers that I have had since I started my career 17 years ago.

~~~
MrRadar
They're often buried in the "expense ratio" of the funds offered. My company's
401k plan has exactly 3 funds with an expense ratio lower than 0.50%, all of
them US domestic index funds. All of my bond and international options have
ERs over 1.00% which is unacceptably high (I have most of my holdings of those
asset classes in my other retirement accounts).

~~~
vonmoltke
I don't really see how that counts as "401k fees", since those funds charge
the same expense ratio to people who buy them on the open market. Investment
choice, or lack thereof, is an issue that goes beyond fund fees.

~~~
whatok
Some 401ks have access to different share classes that have (nearly) identical
funds with different fee structures.

~~~
MrRadar
This. The employees participating in the 401k plan don't choose which funds
the plan includes, HR people (who are often not very well-versed in investing)
do. Those HR people will choose these high-ER funds because the 401k provider
usually offers discounts to their direct costs for having them, essentially
shifting the cost of running the 401k plan from the employer to the employees.

------
arbuge
He is not making any macro statement about the economy. If anything it's a
statement about large cap stock valuations. Warren Buffett likes to pick
value-priced stocks, and there just aren't that many of them around anymore
after 10 years of easy money. Especially if you look at large companies, most
of which are priced to perfection. There may certainly still be bargains in
the smaller company space, but those don't move the needle for a giant like
Berkshire Hathaway.

Expensive stocks may be one sign of an upcoming crash, but they are by no
means a sufficient condition. Stocks can stay expensive for many years, and
the conditions that led to them being expensive (easy money) actually look
like they'll be around for quite a while yet. There are other possible
indicators like the inverted yield curve, but again, one can never say for
sure. Oil prices for example are depressed, and that is not what is typically
seen before a recession:

[https://www.bloomberg.com/opinion/articles/2019-08-27/oil-
pr...](https://www.bloomberg.com/opinion/articles/2019-08-27/oil-prices-aren-
t-predicting-a-recession)

------
sleepysysadmin
It's not news that people are predicting a 2020 recession. The bond yield
inversions are literally people putting their money where their mouth is and
betting on a recession. The definition of an inversion is that 3 month bonds
yields better than 10 year bonds. The first inversions happened in March. It
has been a mistake to go 10 year over 3 month. The 3 month bonds would have
returned already and then you could have picked up the 10 year. It's
completely irrational to make these decisions unless you are predicting a
crash.

It's not just bonds. Price of Gold has skyrocketed since June; Gold is higher
than it has been for years. Bitcoin is back above $10,000. These are your
standard mechanisms to isolate your money from a crashing market.

[https://www.instituteforsupplymanagement.org/ismreport/mfgro...](https://www.instituteforsupplymanagement.org/ismreport/mfgrob.cfm?SSO=1)

ISM is somewhat of a decent report. Soon as they lower below 50% it means
manufacturing is shrinking; which means layoffs. July 2019 new orders are
50.8%.

Nissan is laying off 12,500. GM closing multiple plants. Ford has $20 billion
cash stashed and layoffs. Chrysler is laying off thousands. Toyota, Honda,
everyone is laying off.

Recession is coming for sure, no question.

------
hodder
It is important to recognize Buffett runs an absolutely massive amount of
money and wants concentration. If you are limited by those factors you are
limited to about 400 companies in the USA. Then among those, about half of
them have weak returns on marginal capital invested. Among the remaining 200
or so, he doesn't like the price.

Most investors are not limited to about 200 companies. Keep looking. Look
under 500M market caps. Plenty of companies trading for ev/ebits under 7, PEs
under 10, price/books under 1, with decents ROICs.

Sure stocks on average are expensive, but bargains always exist.

------
shusson
In a similar fashion to the Warren Buffet, it would be nice for people who
give advice to also post a high level asset overview like house, mortgage,
stocks etc. It's hard to evaluate any comment without knowing some biases. I
believe it would also help commenters to stop and think about their own biases
before posting.

------
RickJWagner
Buffett has been known for a long time to keep cash handy as his 'elephant
gun'.

He patiently waits, watching and analyzing, looking for an excellent company
to buy for a fair price (or better). When such a bargain emerges, Buffett
deploys the 'elephant gun' and makes a massive buy.

This has nothing to do with timing the market. Buffett will buy no matter what
the broader market is doing-- it's all that excellent company at a good price
that matters.

Above all, remember: It's not timing the market, it's time in the market.

------
duxup
I always got the impression that if Warren wanted to say something, he would.
As for his cash on hand that could be relative to any number of things.

~~~
jbob2000
Warren knows that his statements are enough to move markets, so even if he
wanted to say something, I think he'd be cautious of how it was said. There's
something called the "Warren Buffet" effect where, when he announces a new
purchase or trade, much of the market follows him and proves him right.

He invests in candy? Everyone invests in candy! Oh look, candy stocks went up,
it must be a good investment!

------
Cyder
One of my favorite "Zen Master" quotes from Gust in Charlie Wilson's War...
Zen Master says, "We'll see." Great life advice along the lines of counting
chickens...Buffet is the Zen Master extraordinaire.

------
wUabkSG6L5Bfa5
Anybody else notice that, by the article's own plot, one could have said the
same thing at almost any point between 1975 and 2000?

~~~
jpmattia
Once you include the data from Buffet's earlier career, total-market-cap to
GDP makes more sense. For example:
[https://static.seekingalpha.com/uploads/2010/7/23/98115-1279...](https://static.seekingalpha.com/uploads/2010/7/23/98115-127994373943112-John-
Lounsbury_origin.png)

Edit: If it were up to me, I might work in monetary supply somehow too (The
gold standard ended in 1972 or so). But maybe there's a reason they call him
the Oracle of Omaha, and nobody calls me the Oracle of Santa Monica.

~~~
wUabkSG6L5Bfa5
That's interesting, there's that plot that floats around of the labor share of
GDP growth diverging from productivity coinciding with the end of Bretton
Woods, which is striking to look at, and I have no idea how to reason about
conditions before compared with conditions after.

------
api
We have an economy that reliably produces a crisis on average about every
eight years. We are quite overdue.

------
hyperion2010
The analogy that I have started to use recently is that of a pressure gauge.
Money has to flow somewhere. The US just dumped a ton of money into the
economy when the pipe (ability of the economy to move a lot of money between a
large number of people, aka bandwidth) is essentially static, not much wage
growth, little hiring, etc. That money has to go somewhere, so it goes to the
stock market, because that is where the pressure is the lowest (very easy to
call up a broker or go online and dump money into an account, compared to say,
hiring and employee that can add real value to your company and the economy in
exchange for a paycheck). Most of the time people assume that companies are
going to take the money they get from stocks and invest it in growing the
company or in paying salaries or paying for goods that pay salaries, etc.
Unfortunately the corps are all sitting on loads of cash, and buying back
stock, and not hiring or expanding (on average). As a result? Money that we
normally expect to be growing the pipe, increasing the bandwidth of the
economy to do real work, is instead flowing back into the pressure gauge and
up goes the pressure, zoom! The economy is doing great! Right?? No. It is hard
to get a good measure of the bandwidth of the pipe, and trying to interpret
the pressure without it is folly, especially with regard to the impact of
reducing the money supply (incoming volume of water). When the flow through
the pipe is large and there is high bandwidth and the pressure is high, and
the money supply drops, then we would expect the pressure to come down a bit,
but in general to be stable essentially due to high inertia in the primary
pipe, but if the total bandwidth is low? Then the pressure gauge is going to
plummet, because the increased pressure (stock value) was due to a large flow
trying to fit into a small pipe, and that pressure increase was due primarily
to the change in the money supply, not due to fundamental soundness of the
current economy (inertia).

Not a perfect analogy, with plenty of mixed metaphors, but simple enough to
reason about and see where it breaks down.

tl;dr economy is flow in pipe, stock market is pressure gauge, if you don't
know the flow through the primary pipe (hard to measure directly), then your
pressure gauge could be extremely, dangerously misleading

------
hourislate
Misleading article title....

This was my take away from the article, reads like a hit piece instead of an
article on Warren Buffett and his warning. Bloomberg is pulling out all the
stops these days...

>Trump’s bonkers G-7 made the world less safe....

>That has all changed in the President Donald Trump era....

>Trump’s erratic behavior before, during and after...

>Another Trumpian chaos agent...

>Trump’s economic-policy anarchy ....

>Trump vs. China vs. Companies....

>One of the more bizarre things Trump said ....

>Trump said he could declare an emergency ....

>Trump ad-libs wild claims...

>While Trump verbally berates his own country’s companies...

>Trump’s trade war will make things much worse...

>Far from the economic basket case Trump would have you think ...

The news these days is a big stinking pile of crap, it's not even news
anymore.

