Offline Gurus - Warren Buffett
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Warren Buffet is second in wealth only to Bill Gates. He is a market genius. He has made all of his money because he understands the most fundamental principal of investing and that is to only invest where there is value. I do not need to go on and on about Mr. Buffet because his name sums it all up. If you were to look up in the dictionary the words of success and investing Mr. Buffets name should be there. If you want to know how to invest in the markets and how to be successful in life and business read everything that he has published and read it over and over again. Follow what he does and where he invests.
The following is an analysis of one of Mr. Buffet’s transactions in leasing silver to Enron and how he found value and guarantees as well as supporting my point of following what the greatest investor of our time is doing:
“Well, anyway, my attitude towards silver has changed and I find myself in the bull camp on silver, even if just for a short time. Here is why. Short sellers as well as a fall off have driven down silver in industrial demand due to the recession. We at Centennial could not figure out who would be selling short at such low prices ($4.50 and lower) until the bankruptcy of Enron occurred.
Then all the dirty laundry came to light. Apparently, Enron used Rudolf Wolff as its commodities broker to clear its trades. And so did Warren Buffet. And good old Warren deposited his physical silver with Rudolf Wolff, and Enron helped themselves to it through the leasing program. Everything was going along just fine until Enron went bust.
The story out on the street is that Warren Buffet now wants his silver back (approximately 50 million ounces of his 130 million ounces total.) The problem is that Enron sold it into the market and now it is gone. Normally, that would be the end of the story because bankruptcy discharges all obligations. But in silver and gold leasing deals, a third-party guarantor is required just in case things go sour. That third-party guarantor is one of the major bullion banks. (Take your pick from Goldman Sachs, Deutsche Bank, JP Morgan Chase, et al. Nobody knows for sure because nobody is talking.)
My source who tipped me off back in November has been 100% correct so far. As the silver price broke above the downtrend line at $4.24, an acceleration occurred up to around $4.50. Then a minor sell off back to $4.30 before its recent advance to $4.72 (London spot). Yesterday's and today's action moved silver right up to and slightly above the 200-day moving average at $4.66. Comex March futures are at $4.65 which is a 7 cent discount to spot. So depending on whether we use spot or March futures, as far as this indicator goes, the jury is still out. It is entirely possible for a sharp sell off to occur from this level. It is my personal belief that silver will punch through the 200-day moving average before it falls back towards $4.50. (Today's low in Comex March futures was $4.52 early in
Silver trades in both London and New York. The upward pressure is now occurring in the London spot market, most probably because that is where Warren Buffet had delivered his silver initially way back in 1998. You all remember the story of "someone" draining the Comex warehouse of silver and then shipping it to London. It took a lawsuit by "injured" parties against Phibro Salomon before Warren Buffet emerged from the shadows as the client. And I presume that the leasing arrangement took place in London as well. This makes sense to require the borrowers of Buffet’s silver to return it to London, not New York. And here is where it gets interesting.
I have been tracking the Comex warehouse silver stocks since the third week of December where they stood at roughly 103 million ounces. Silver lease rates in the meantime have fluctuated between 7% (bid) on the low side and 29% (ask) on the high side. As the price of silver has risen in both New York and London, so have the New York Comex warehouse stocks. This increase is most likely attributed to the high lease rates. Where else can you earn 20% on your money (silver) annually? As a result, there are now 2 million more ounces of silver in the Comex warehouse (approx. 105 million ounces) than just two weeks ago on December 20, 2001. Normally, more supply drives down prices and not the reverse. How could this happen?
The answer lies in the fact that the silver on this side of the Atlantic Ocean does not meet the specifications for delivery in London. So it is not simply a case of loading a bunch of silver bars onto an airplane and flying it to London. The bars must first be refined and then delivered. In the meantime, there is an appearance of a glut of silver in the U.S., which could be drawn down to meet demand. I am sure that the "monied interests" on Wall Street who are short silver up the wazoo are very happy to see rising silver warehouse stockpiles. Furthermore, I am sure these same people want every silver speculator to sweat it out and have sleepless nights, fearful that the spot price could crash without notice.
Bottom line here is: until sufficient supplies of deliverable silver arrive in London, we will see the spot price trade about 7 to 10 cents above March futures. For a change, we will see the spot physical market leading the futures market, i.e. the dog wagging its tail and not the tail wagging the dog. Also I think silver will breach the 200-day moving average and go higher. Technically, the weekly trend has turned up and silver just completed a 114/115 week cycle low in mid-December. Thirdly, when (not if) events in Argentina spin totally out of control, both gold and silver will jump dramatically. I expect this to happen in January, maybe next week. Note Argentina's defaulted debt doubling to around $270 billion. ( I bet the banksters did not count on this happening.)
Now add to the foregoing points the introduction of the Euro as a real trading currency on Tuesday; the burgeoning M3 money supply (over $1 trillion increase last year); the rising consumer and government debt with the need to raise the federal debt ceiling another $750 billion (so say the Republicans); the lowest interest rates in almost 40 years; political and military confrontations (India v. Pakistan, Israel v. Arab world) around the globe which could lead to a major war at any time; now we have the real makings of a bull market in gold and silver to be accompanied by a collapse in the U.S. Dollar. I seriously doubt that foreigners (and especially the Arab oil interests) will want to hold Dollars exclusively especially when we are now running huge deficits and there is an alternative (the Euro) which is partially backed by gold. I consider the arrival of a real physical Euro to be the final piece in the puzzle. In short, all of these events coming together at this time is truly prodigious and it augers well for gold and silver in 2002 and beyond.”
Wow, that is truly incredible, isn’t it? I suppose that is why he is considered the greatest investor in the world!
Who am I to recommend Mr. Buffet. I mean nothing. But I put him here on this website because if you are reading it you want to figure out how to improve your financial life. So hear goes, I give Mr. Buffet the highest accolades possible. All I can say is INCREDIBLE.
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