If Warren Buffett Can't Find Value Stocks To Buy And Is Nervous About US Dollars You Should Be As Well - All Roads Lead To Gold And Gold Stocks

Warren Buffett is the most high-profile and greatest value investor ever and he announced at the annual shareholder meeting on Saturday, that he is stepping down from being the CEO of Berkshire Hathaway at the end of this year.

His departure comes at an interesting time in the market because Wall Street stocks are trading at historically high valuations, while they are ratcheting down guidance or unable to give guidance due to economic uncertainty.

A value investor's job is very hard these days due to high stock prices and a challenging earnings environment. This was the case before Trump started a trade war with tariffs that are a tax on consumers and will get worse as it continues and even if the trade war was completely stopped.

When you look out at the spectrum of industries, really only one can say that they are growing free cash flow at an astounding rate and adding cash to their balance sheets in a remarkable way. Those are the gold miners, practically all of them are producing gold for under $2000 per ounce, while selling it for over $3000 per ounce. Their shares are not really accurately pricing in the current price of gold and are certainly not pricing in gold going higher by a significant amount.

As I was reading about his sage advice from the annual shareholder meeting, before a crowd of over 40,000, some points stood out to me. One was that he looks at a company's balance sheet before the income statement as accounting games can be played with the income statement but not so much with the balance sheet. When it comes to the balance sheet, the gold miners are free cash flow machines and adding cash to the balance sheet at a remarkable clip.

Agnico Eagle is a great example, in their latest quarter they passed an important milestone as their cash now exceeds their debt. They were able to pass that hurdle while paying dividends, buying back stock and also investing in growth. They're mining gold for a couple hundred dollars per ounce below the average cost of production for the major gold miners.

It is also interesting that Warren Buffett is retiring at a time when gold has been in a powerful bull market and is in a perfect storm to go much higher, considering how he started his life. His father owned a small brokerage firm, and was a gold bull who advocated for sound money. So I can imagine that young Warren Buffet grew up around his father talking about gold and stocks.

Warren Buffett definitely followed in his father’s footsteps when it came to investing in stocks by starting at the young age of 11. But throughout his career he didn’t follow his father’s fondness for gold, having never invested in it. He did make a foray into precious metals by taking a large position in silver, but took profits well before silver blasted off in the 2001 to 2011 metals bull market.

It seems a little ironic that just as Warren Buffett is walking away from leading Berkshire Hathaway, the best value propositions are in the gold stocks. And his father would be vindicated for being a gold bull as sound money is becoming very important to the central bankers of the world.

He did mention his concerns about Trump’s trade war and emphasized that America has benefited greatly from global trade. He also gave the advice that others should do what they do best and America should do what it does best.

He doesn’t think it is a good thing that billions of people have animosity toward America due to the global trade war Trump has started, while millions of Americans are thumping their chest about having all the cards.

One of things he talked about that stood out to me is how governments are consistently destroying the purchasing power of their currencies. These are key reasons why gold is trading at record highs against every fiat currency including the world reserve currency.

He also made a point about the lack of government restraint on fiscal issues, stressing that America is on an unsustainable path when it comes to the debt. Which is a fundamental reason why gold is performing so well as it is the antidote to the virus that is the Death Spiral of Debt made worse by the remarkable growth in the cost of servicing the debt.

The most alarming part of Trump's trade war is that it will cause the economy to slow and inflation to rise. Problematic stagflation is about to hit the shores of America as the ships stop coming with goods from China and other parts of the world due to the economically suicidal tariffs.

Trump and his team should pay attention to Warren Buffett’s comments about the trade war. I doubt they will, but you never know. The trouble for them is that to fix the trade war would require admitting it is a colossal mistake and completely ending the trade war. I am highly doubtful they will do that as it would take true leadership that would have been in place if they never enacted the tariffs in the first place.

Another key comment that Warren Buffett made is that conditions could easily make them want to own a lot of other currencies besides the US dollar. Context is always important and he is a long-term perma-bull on the US economy, so him seeing plenty of looming reasons to own other currencies is a huge statement about his concerns for the economy and US dollar.

There are no signs that Trump and his team are having any progress with the talks with China on the trade war. At best, even sitting down to talk could be weeks away, and a trade agreement is likely months away. If it takes that long the supply chain will be completely broken. It is already breaking as ships full of goods are slowing down and that is about to be seen when it comes to products on shelves in America any day and will only get worse.

Inflation in prices will hit the shelves very quickly because companies have clear insights into their supply chains, and when consumers start seeing less products on the shelves they will hoard what they can. Which will cause companies to increase prices as they see the demand from fear and the weakness of their supply chains.

An inflation shock is imminent, it is already starting and will ramp up. It wouldn’t surprise me to see inflation blow past 4% and make a move to 5% and higher.

In addition, the economy is slowing due to economic uncertainty from corporate leaders to consumers. A Trump recession is likely, and even if it doesn’t dip into recession, it is on a path to dropping toward one.

This is going to cause troublesome stagflation that once it gets going will be extremely difficult to contain, it won’t be transitory. Stagflation is extremely bullish for gold and silver.

Meanwhile, Wall Street stocks are priced for perfection based on trailing earnings and it is impossible to assess them based on forward earnings due to the economic uncertainty. The recent rally looks long in the tooth and more like a sucker’s rally than one based on strong fundamentals.

It is shocking that there is a rally in Wall Street stocks when many of them are declining from giving guidance on their business outlook, those that are brave enough to make them are ratcheting them down.

The key reason they are giving is that they can’t give guidance due to economic uncertainty which is a big alarm that every investor should be paying attention to and not a reason to buy, it is a reason to be selling and going short.

Another bearish factor for the US dollar is the extreme supply of US debt, plus the trade war that has foreign buyers concerned about owning US debt and looking at selling. The supply is going to get much worse as the politicians are increasing spending, not slashing, and even more concerning is that they want to increase the debt ceiling by $4-5 trillion.

The politicians want to spend more and dramatically increase the debt ceiling when $6.5 trillion of debt has to be rolled over by the end of June and another $2.7 trillion by the end of this year. Therefore, the extreme supply is about to get worse and overwhelm the domestic buyers while scaring away foreign buyers.

If foreign investors go to the sidelines in Wall Street stocks and US debt, then they won’t need to buy US dollars to buy those assets. Which will put pressure on Wall Street stocks, US debt and US dollars.

It is no wonder that Warren Buffett’s Berkshire Hathaway is sitting on a record cash position, but he sounds nervous about sitting on US dollars. Rightfully so as the fundamentals of the economy, Wall Street stocks, US debt and US dollars are bearish and getting more bearish.

What is an investor to do?

Of course that is up to each investor, I know what I am doing and that is to short Wall Street and be long gold stocks.

All the best,

Allan Barry Laboucan