Buffett on Real Estate/Commodities

[wayneL]

Buffet bearish on real estate, implies commodities are in a bubble.

http://money.cnn.com/2006/05/05/news/newsmakers/buffett_050606/index.htm

Excerpts:

"Dumb lending always has its consequences. It's like a disease that doesn't manifest itself for a few weeks, like an epidemic that doesn't show up until it's too late to stop it Any developer will build anything he can borrow against. If you look at the 10Ks that are getting filed [by banks] and compare them just against last year's 10Ks, and look at their balances of 'interest accrued but not paid,' you'll see some very interesting statistics [implying that many homeowners are no longer able to service their current debt]."

But in metals and oil there's been a terrific [price] move. It's like most trends: At the beginning, it's driven by fundamentals, then speculation takes over. As the old saying goes, what the wise man does in the beginning, fools do in the end. With any asset class that has a big move, first the fundamentals attract speculation, then the speculation becomes dominant.

Once a price history develops, and people hear that their neighbor made a lot of money on something, that impulse takes over, and we're seeing that in commodities and housing...Orgies tend to be wildest toward the end. It's like being Cinderella at the ball. You know that at midnight everything's going to turn back to pumpkins & mice. But you look around and say, 'one more dance,' and so does everyone else. The party does get to be more fun -- and besides, there are no clocks on the wall. And then suddenly the clock strikes 12, and everything turns back to pumpkins and mice."

 

[tech/a]

Re: Buffet on Real Estate/ Commodities

Both Fundamentals and Emotion can be traded.

It doesnt matter who's right and who's wrong.
Take advantage of opportunity and understand/mitigate risk.

Taking advantage of opportunity and even giving 50% back is better than burying your head in the sand with fear of loss that you've not realised in the first place.

 

[Knobby22]

Re: Buffet on Real Estate/ Commodities

Didn't know Buffet knew so much about orgies.

At the risk of saying this time is different, the Fed are printing money encouraging debt and inflation but the resource boom is real and will likely last a few years yet. Energy will remain an ongoing concern.

I can see the Dow continuing to rise and the crunch being avoided for a long while yet but when it occurs it will be very hard for the US and won't be much fun for us either. The US and $A may drop savagely and investors who wisely invested in energy and bio stocks will be the most cushioned.