Tuesday, December 22, 2009

Burlington II

Latest news on Burlington got me thinking about my earlier post.
This is what I am trying to understand...
1. WB (Warren Buffett) has made large mistakes in the past and this could be one of the new ones.
2. Clearly, he values Burlington stock with a better earnings profitability potential than BRK, taking into account 40% of the purchase being funded through BRK stock.
3. Clearly, he is betting on the US to remain, if not grow, as a consumer; related to this is the fact that he predicts oil prices to shoot up which would make road transport relatively expensive. This, in turn, means inflationary winds.
He will not invest in gold because that is pure speculation - simply because gold is unaccountable. He cannot remain in cash because he believes that yields will shoot up.
He believes that Burlington will do a much better job than any other asset in terms of coping with inflation.

4. This is a doozie. May be, he believes that everything is going to hell and cash is going to get eroded in value. Yields shall shoot up. Stocks shall fall. Bond prices shall crumble.
a. It has been noted that a large portion of Buffett's parked money was in non dollar currencies.
b. He had also proclaimed in 1987 (refer letter to shareholders) that he doubted the long-term sustenance of the USD.
In this case, something that will best preserve its value is something that people and companies will turn to in a state of crisis.

5. Going back to the first point, he could be wrong and US consumption might go terribly wrong.

6. There is also an important point; he is going to leave soon and he may deem fit that a lot of the assets are deployed.

I am beginning to fear the optimism that is pouring back into (all) the markets. I also believe that January is when the capitulation shall begin. I am not very confident about the January thing, however, I am pretty certain that there will be a big rumble in the world.

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