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The Hundred Billion Dollar Man – Jeff Nielson

by Jeff Nielson, Sprott Money:

Regular readers are familiar with Warren Buffett’s activities over the past few years. He has been hoarding dollars – lots and lots of dollars. This was first brought to the attention of readers in August 2014. At that time, Buffett was already hoarding $50 billion.

With U.S. markets already at bubble levels and the rapidly decaying U.S. economy already showing signs of serious strain, the speculation in that initial article was that Buffett was looking forward to an imminent collapse in U.S. markets – and a feeding frenzy with his mountain of vampire dollars. After all, Buffett was already 83 years old, and his hoard of dollars was already the largest of his entire career.

Who knew back then that the bankers would and could continue to pump U.S. markets higher for another three years? Who knew that Warren Buffett would still be alive to see it? Who knew that over the last three years that Buffett’s hoard of vampire dollars would swell to $100 billion in size?

How and why could a “long term value investor” like Warren Buffett ever end up with $100 billion investment dollars sitting on the sideline? In a recent article from the Financial Post, Buffett shows that even at age 86 he can tap dance with the best.

The Berkshire chief executive officer spoke at length Saturday about his failure to pounce on opportunities in tech stocks, the challenge of lining up large deals, and his frustration with a cash pile that’s approaching US$100 billion.

“We shouldn’t use your money that way for long periods,” Buffett said of the cash during his meeting in Omaha, Nebraska. “The question is, ‘Are we going to be able to deploy it?’ I would say that history is on our side, but it’d be more fun if the phone would ring.”

Buffett sounds like some coquettish 16 year-old, hoping to be asked to the high-school prom. Buffett’s equity portfolio is valued at $135 billion. With $100 billion in cash, that means more than a 40% cash component, an unprecedented mountain of cash in the history of Berkshire Hathaway.

If Berkshire Hathaway wanted to invest a few billion dollars in some large corporation, it’s not like Buffett and friends would see any doors slammed in their faces. What’s the real reason that Buffett isn’t doing more buying? The same article sheds some additional light.

David Rolfe, who manages about US$6.8 billion including Berkshire shares at Wedgewood Partners, said he wasn’t surprised that Buffett is bummed out by the growing cash pile. Stock markets have been rising for years, making it harder to find attractive investments .

“A run-of-the-mill bear market could certainly solve the cash problem” by offering opportunities for Buffett, Rolfe said. [emphasis mine]

It’s not that Warren Buffett can’t find any companies in which he would like to deploy some of Berkshire Hathaway’s (and his own) vampire dollars. It’s that Buffett doesn’t want to pay bubble prices for these equities.

When you’re 83 years old, you don’t have long to wait. Apparently, however, the opportunity which Buffett’s banker friends promised him was worth waiting for – for at least three more years. The problem is that no “run-of-the-mill bear market” can provide the Oracle of Omaha with enough stellar opportunities to deploy a mountain of cash this large, not in the time Buffett has remaining.

Buffett has named no successor. If he was planning on simply stepping aside and allowing someone fresher/younger to deploy the largest mountain of capital in Berkshire Hathaway history, Buffett has given absolutely no hint of this. On the contrary, all of his public representations indicate that he plans on spending these dollars himself.

When?

When readers were originally warned that the Next Crash was approaching ( November 2014) and told that the most likely time horizon was the spring of 2016, there were several reasons for presenting that prediction. Among them was the Buffett cash hoard.

That prediction was obviously premature. Bubble valuations in U.S. markets have grown even more absurd. The mindless parrots of the Corporate media call it “the Trump rally”, despite the fact that all Trump has done since getting elected is exactly what any sane observers expected. He has continued to shoot off his mouth erratically and already managed to get himself involved in several scandals.

Read More @ SprottMoney.com

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