Swords to Ploughshares – Buffett & Gold, UK Jobs Collapse, Tesla goes to the Moon
(Wizards of the Coast owns the copyright for the featured image above.)
I’m still here and just as committed to this website as ever before. I needed to take a short break, for the “public service” of adding to the Covid-19 debate.
You’ve probably read more about Covid-19 than you ever wanted to. I know I have. And over the last few months, I have resisted the urge to speak out as often as I might have, despite having a contrarian view which I felt was well-supported by data and plenty of background reading.
Earlier this month, I finally felt I had to say something. There were some facts around the debate which I just didn’t think had been properly appreciated by a wider audience. So I published two threads on my Twitter (it’s at @grahamneary – I’m guessing there’s a good chance that you follow me there already!)
The first thread was very successful in terms of impact. Getting raw data from an Irish statistical office, and applying some common-sense adjustments (I think), I expressed the view that overall mortality in Ireland in 2020 has been completely normal on a year-to-date basis, and that the excess deaths seen in the month of April may be attributable mostly to factors other than Covid-19 (especially the closure of the healthcare system).
This thread enjoyed a total of 500 retweets and 1,300 likes. Pretty good!
Emboldened, I started to reflect on the bigger picture.
Months ago, I had read the papers which triggered the UK government into locking down. I knew that those papers had influenced policy in the USA and their estimates had been applied to other countries, heaping pressure on European governments (e.g. Ireland, which locked down, and Sweden, which didn’t). It bothered me that not enough people knew where the estimates in these papers had come from.
And so another thread was born, giving the origin story of the predictions which helped to trigger lockdown. I wanted to remove the (in my view, unjustified) aura of respectful mysticism which surrounded them.
I think It’s fair to say that this was achieved. The tweets in the second thread have been retweeted 12,000 times and liked 24,000 times. Total impressions can be counted in the millions.
So, for now at least, I will say “my work here is done”. When more data emerges for Irish mortality, I will probably look at that again and update my estimates. I would still like to have a better understanding of deaths caused by changes to the healthcare system vs. deaths caused by Covid-19. This needs to be done both for short-term impact and long-term impact.
But I can’t do that today. Today, I need to get back to my day job and my first love: writing and speaking about shares and the financial markets.
The UK FTSE Index has moved very little in my absence. Here are 1-month and 6-month charts from Google Finance:
As mentioned on this website on August 6th, I was structuring an options trade on the FTSE that day. The index was just below 6000 when I executed this trade.
So I’m more exposed to the index at this point, and my leverage has increased modestly (if the market crashed, I would be able to fully collateralise my trades).
One of my goals is to write up the rationale for this trade in more detail. Watch out for that.
Some major stories which have been of interest:
Berkshire Hathaway buys stake in Barrick Gold
The latest 13F for Berkshire Hathaway ($BRK, in which I have a long position) showed the acquisition of 21 million shares in Barrick Gold ($GOLD). This will have cost something in the region of $500 million. Naturally, Barrick’s shares are higher since this was announced.
Granted that $500 million is not exactly going to deplete Berkshire’s cash balance, this is still a remarkable news story. Because:
- Berkshire was also a net seller of banks during the period.
- Warren Buffett has spent decades putting down gold as an investment.
In relation to 2., it must be said that WEB himself might not have made the decision – it could have been one of his two investment managers.
Also, we have to make the distinction between gold itself, the commodity, and gold mining companies. Buffett’s argument against gold has always been that it doesn’t do anything, and so it can’t be expected to generate much of a return. The same can’t be said for gold miners (if they are good at allocating capital, at least).
The trade is powerfully symbolic because Buffett’s father, Howard Buffett, was a notorious gold advocate. Part of me always suspected that WEB’s attitude to the yellow metal might have been a sort of rebellion against that position. Is he now coming around to the view, which his father would share, that the endgame for the current monetary system is very high inflation?
His business partner Charlie Munger has also been outspoken against gold. But perhaps these two gentlemen, keen students of history, now expect the effects of excessive money-printing to repeat themselves.
Vulnerable UK jobs market facing huge risk
Some of you will know that my largest personal investment is in a small UK turnaround investment vehicle, whose most frequent strategy is buying companies out of administration.
This makes me particularly interested in the UK’s Covid schemes and in corporate health – I want to know if and when there is going to be a wave of corporate redundancies.
The red flag report from insolvency practitioner Begbies Traynor (BEG) is helpful, in this regard. In July, they said:
…it is likely that the true impact of the coronavirus pandemic will only become apparent during the third and fourth quarters of 2020 as government support initiatives are unwound and courts fully reopen so that enforcement action can be taken.
This is in line with the consensus view that I have heard from other sources. Much will depend onwhat Chancellor Rishi Sunak decides to do with the UK jobs furlough scheme. It is due to end in October, but will it be? Personally, I would expect some form of support to continue, but I can’t predict how large it might be.
Saving millions of people from becoming officially unemployed (instead of de facto unemployed) will require a combination of relaxing Covid-19 restrictions, extending the furlough scheme, and other business supports. Naturally, the jobs at risk also represent business plans and companies at risk.
Whatever happens, I expect budget deficits to remain elevated. All roads lead to gold (and yes, I do have gold exposure!)
Tesla goes to the Moon
(For the avoidance of doubt, I currently have no position in $TSLA.)
The Tesla share price continues to head for the moon (or maybe Mars?). It’s in 100-bagger territory:
The most recent cause for exuberance was the announcement of a 5 for 1 stock split. This makes no difference at all to the value of the business, but the value of the business has never mattered much to the stock.
It will be a tremendous short, some day.
I continue to watch it with fascination.
That will do for a quick roundup as I get back into gear, investment-wise.
I’m can’t wait to forget about Covid-19, at least for the immediate future, and deal with more peaceful matters.
For out of Zion shall go forth instruction, and the word of the Lord from Jerusalem. He shall judge between the nations, and shall arbitrate for many peoples; they shall beat their swords into plowshares, and their spears into pruning hooks; nation shall not lift up sword against nation, neither shall they learn war any more.