Category: zerohedge

Authored by Tsvetana Paraskova via OilPrice.com,

U.S. shale production growth has outperformed even the most bullish forecasts, forcing OPEC and the International Energy Agency (IEA) to revise up American supply growth projections month after month.

The U.S. Energy Information Administration (EIA) also expects shale/tight oil to continue to grow in all possible modeled scenarios for the next four years, according to its Annual Energy Outlook 2018 published this month.

While the EIA is not predicting what will happen, it is modeling possible production scenarios under certain assumptions. Under one of those modeled projections—the Low Oil and Gas Resource and Technology case—the assumptions applied are lower resources and higher costs. In this model, U.S. tight oil production – including the plays Bakken/Three Forks/Sanish, Eagle Ford, Woodford, Austin Chalk, Spraberry, Niobrara, Avalon/Bone Springs, and Monterey – is expected to rise from 4.96 million bpd in 2017 to 5.59 million bpd in 2022, and then to start declining on a steady downward trend by 2050, when tight oil production is expected to be at 4.42 million bpd.

This is one of the side cases in EIA’s models, and one of the most unlikely, because it assumes no technological breakthroughs, lower resources, and higher costs. Under this model, total U.S. crude oil production is pegged at 9.14 million bpd this year, while figures are currently available, showing that production is already above 10 million bpd and likely to average more than 10.5 million bpd this year.

The Reference case scenario shows tight oil production jumping to more than 7 million bpd by 2025 and surpassing 8 million bpd in 2036, before starting to level off some time in the early 2040s. Total U.S. crude oil production in the Reference case is between 11 million bpd and 12 million bpd by 2050, “as tight oil development moves into less productive areas and as well productivity declines,” the EIA says.

Sure, longer-term projections are much more uncertain than shorter-term forecasts, and U.S. oil production will depend on many factors – oil prices, the pace of technological advances, costs, well productivity, and U.S. and global oil demand growth, to name a few.

Moreover, the pace of the booming shale production over the next five years will also be determined by several factors that could limit the supply growth potential, which the EIA has not accounted for in its modeling, energy expert Robert Rapier writes on Forbes. These are midstream infrastructure constraints, the flaring of associated natural gas that has limits imposed, cost inflation, and shortage of fracking service providers that could potentially slow down growth over the next few years and could shift the timing of peak tight oil, Rapier argues.

Everyone agrees that shale will grow in the near term – even OPEC, which admitted in its World Oil Outlook 2017 that U.S. tight oil will grow at least until 2025 as “drillers seek out and aggressively produce barrels from sweet spots in the Permian and other basins.” OPEC sees U.S. tight oil peaking in the latter half of the 2020s.

Still, the shale growth rate will depend on how fast pipeline infrastructure can keep up with increased production.

Midstream companies will continue to pour billions of dollars into takeaway capacity infrastructure in the Permian, with each project worth around US$1 billion, for a total of tens of billions of dollars, Aaron Blomquist, managing director, investment banking with Tudor, Pickering, Holt & Co., told Midland Reporter-Telegram in an interview at the end of 2017.

The question is whether the rise in takeaway capacity will catch up with the surge in production.

U.S. shale growth will also hinge on how fast labor shortages or shortages of frac sand could be overcome.

In addition, growth will depend on whether drillers – who could soon start to test the Permian region’s geological limits – will be able to overcome the geological constraints with tech breakthroughs. If drillers can’t overcome the law of physics with technology, Permian production could peak in 2021, putting more than 1.5 million bpd of future production in question, and potentially significantly influencing oil prices, Wood Mackenzie has warned.

The pace of shale growth will also be determined by the shift in investor sentiment toward drillers that gained momentum in the second half of 2017. Oil tycoon Harold Hamm issued a warning that U.S. producers won’t succeed if they “drill themselves into oblivion”. Now there is a shift from ‘grow at all costs’ to ‘make some profits for a change’, and companies are more focused on cash flow generation.

“Investors really want companies to generate good economics which, for the most part, means living within your means, spending cash flow or below cash flow and using any free cash flow to do something good for the shareholders, whether it’s pay off debt, buy back shares or even pay a dividend,” Robert Watson, chief executive at San Antonio-based Abraxas Petroleum Corporation, told North American Shale magazine’s Patrick C. Miller earlier this month.

There is no doubt that U.S. shale production will grow over the next three to four years. But there are many economic, geological, technological, corporate finance, and infrastructure factors that will set the pace for that growth, both in the short term and in the long run.

via Zero Hedge http://ift.tt/2EZve3M Tyler Durden

Yesterday morning we reported that in what was a clear sign of hope for the bears, after days of diterhing, “world renowned commodity guru” Dennis Gartman had stopped out his market short, just days after suffering “one of the worst days in a very long while” after Gartman’s retirement account suffered substantial losses on its log Riot Blockchain position.

And yet, despite Gartman’s capitulation, the DJIA still closed up 400 points yesterday, prompting the idea that “Clearly covering a short is not enough: Gartman needs to go long.”

Clearly covering a short is not enough: Gartman needs to go long

— zerohedge (@zerohedge) February 26, 2018

Well, we have good news: in the latest shift to the Gartman portfolio that may explain why the market is red today, in his daily Gartman Letter, the regular CNBC Fast Money guest writes the following:

Since our error of judgement regarding an investment in the Blockchain two weeks ago and since the preposterous rumours spread by Bloomberg.com of the supposed “demise” of our retirement fund, we’ve kept a rather low profile and have tried not to make material changes to our retirement account.

We are still long of the shares of the largest independent bank in Tidewater, Virginia as we were then. We are long of the shares of a business development company, bought for the dividend paid monthly. We are long of the same energy related trust that we were then, bought also for its well covered monthly dividend and we are now long of gold, as recommended yesterday.

Finally, we have a derivatives position in place that has reduced our exposure to the long side of the market, leaving us modestly net long of “equity” on balance.

Our advice to Fed Chair Jay Powell – if he really wants to slam the market over which he appears to have lost control – is to take the bolded sentence above, and read it out loud during his Congressional testimony, in binary language of course. The algos will take care of the rest.

via Zero Hedge http://ift.tt/2HR2Rqj Tyler Durden

Less than a week after Dallas Federal Reserve Bank President Robert Kaplan sounded the alarm over the level of debt that America’s government is projected to carry, Fed Chair Jay Powell told Congress today that “the US is not on a sustainable fiscal path.”

Treasury yields were already spiking…

However, as we pointed out previously, nearly a decade after the US unleashed its biggest debt-issuance binge in history, doubling the US debt from $10 trillion to $20 trillion under president Obama, which was only made possible thanks to the Fed’s monetization of $4 trillion in deficits (and debt issuance), the Fed is starting to get nervous about the (un)sustainability of the US debt.

To summarize Kaplan’s and Powell’s view: when US debt doubled in the past decade the Fed had no problems, and in fact enabled it. And now, it’s time to panic…

via Zero Hedge http://ift.tt/2BWct2w Tyler Durden

With stocks enjoying one of their best years this cycle in 2017, it will probably not come as a surprise that the world’s largest sovereign wealth fund, the $1.1 trillion Norges Bank Investment Management, had ample reason to party: on Tuesday, the Oslo-based Norwegian Sovereign Wealth fund announced it had made more money in 2017 than in any other previous year in its history – the 2017 return was equivalent to $131 billion, roughly $358 million per day, and a whopping 13.7% return.

Owning on average 1.4% of the world’s listed stocks, the fund, which like the Swiss National Bank, largely follows indexes has some leeway for some active management. It’s also in the process of double down on merging its fate with that of the global stock market, and is in the process of raising the share of stocks in its portfolio to 70% to improve returns even more.

The fund’s stock portfolio rose 19.4% in the year, while fixed income investments gained 3.3% and real estate grew 7.5%. It held 66.6% in stocks at the end of 2017 – a number which will rise to 70% in the coming months – 30.8%in bonds and 2.6% in real estate.

And, just like the SNB, its biggest equity investment in 2017 was Apple followed by Nestle SA and Royal Dutch Shell Plc, while its largest fixed income holdings were U.S., Japanese and German government bonds.

Discussing the fund’s results, CEO Yngve Slyngstad acknowledged that the fund’s growing exposure to the stock market means that returns may be more volatile in the future.

It won’t however, have gunmakers to blame, because as the FT reports while the fund was adding billions in stock to current and new positions, the world’s largest sovereign wealth fund was sharply reducing its stakes in the three largest listed gunmakers in the US amid the growing debate over how investors should react gun control and mass shootings.

Specifically, the Norwegian sov. wealth fund cut its stake in American Outdoor Brands (fka Smith & Wesson) by almost 90 per cent during last year. As of December 31 2017, the fund owned just 0.15% of the company.

In addition, the fund – Government Pension Fund Global – almost halved its stake in Sturm Ruger, another iconic US gunmaker, to 1% while it cut its holding in Vista Outdoor by a quarter to 0.7% .

The fund only discloses its ownership positions once a year and noted that the reduction took place in 2017, before the recent debate sparked by the killing of 17 in a shooting at a Florida school earlier this month.

While he was happey to discuss other aspects of his business, CEO Slyngstad was tight lipped when commenting on the individual company sales, but stressed that the fund had “not put these companies on a divestment route.” It must have just happened by accident then…

Quoted by the FT, he said that “we don’t have a deliberate strategy with regards to gun use because this is not a sector that we are covering in our security selection strategies. Our changing ownership in these companies will be an effect of quantitative strategies more than any specific analytics.”

Which is odd, considering that despite the lack of a “discretionary” decision, the Norges Bank’s investment fund saw its gunmaker holdings tumble to almost nothing.

To be sure, the sensitive topic of whether or not to hold gunmaker shares is not new: while the fund is barred from owning a number of companies based on the products they make, from nuclear weapons and coal to tobacco and cluster munitions, it has previously proposed excluding oil and gas companies from its portfolio, but Slyngstad said any decision on gunmakers would be for the council of ethics, an independent body, to take, not the fund itself.

Semantics acrobatics aside, it appears that the decision had already been quietly made, and follows the active campaign by BlackRock, the world’s largest asset manager and also the biggest shareholder in American Outdoor Brands and Sturm Ruger, to speak to gunmakers “to understand their response” to the school shooting but did not say whether it would reduce its stakes.

State Street, another large US investor, said it would talk to gunmakers “to seek greater transparency from them on the ways that they will support the safe and responsible use of their products”.

Finally, despite what appears to be a surge in demand and interest for guns, which we expect will translate in record top and bottom lines for gunmakers…

… the threat of continued gunmaker stock liquidations continues to depress the space, and as of this morning, gunmaker stocks saw continued selling pressing dragging them lower by over 5%.

 

via Zero Hedge http://ift.tt/2sXRgCl Tyler Durden

Authored by Patrick Buchanan via Buchanan.org,

In a surprise overtime victory in the finals of the Olympic men’s hockey tournament, the Russians defeated Germany, 4-3.

But the Russians were not permitted to have their national anthem played or flag raised, due to a past doping scandal. So, the team ignored the prohibition and sang out the Russian national anthem over the sounds of the Olympic anthem.

One recalls the scene in “Casablanca,” where French patrons of Rick’s saloon stood and loudly sang the “La Marseillaise” to drown out the “Die Wacht am Rhein” being sung by a table of German officers.

When the combined North-South Korean Olympic team entered the stadium, Vice President Mike Pence remained seated and silent. But tens of thousands of Koreans stood and cheered the unified team.

America may provide a defensive shield for the South, but Koreans on both sides of the DMZ see themselves as one people. And, no fool, Kim Jong Un is exploiting the deep tribal ties he knows are there.

Watching the Russians defiantly belt out their anthem, one recalls also the 1968 summer Olympics in Mexico City where sprinters Tommie Smith and John Carlos stood on the podium, black gloved fists thrust skyward in a Black Power salute, asserting their separate racial identity

Western elites may deplore the return of nationalism. But they had best not dismiss it, for assertions of national and tribal identity appear to be what the future is going to be all about.

Some attendees at the CPAC conclave this past week were appalled that Britain’s Nigel Farage and France’s Marion Le Pen were present.

But Farage was the man most responsible for Brexit, the historic British decision to leave the EU. Le Pen is perhaps the most popular figure in a National Front party that won 35 percent of the vote in the runoff election won by President Emmanuel Macron.

And the most unifying stand of the NF appears to be “Let France be France!” The French people do not want their country invaded by unassimilable millions of migrants from Africa and the Islamic world.

They want France to remain what she has been. Is this wrong?

Is preservation of a country, the national family one grew up in, not conservative?

In Hungary and Poland, ethnonationalism, the belief that nation-states are created and best suited to protect and defend a separate and unique people, with its separate and unique history and culture, is already ascendant.

Globalists may see the U.N., EU, NAFTA, TPP as stepping stones to a “universal nation” of all races, tribes, cultures and creeds. But growing numbers in every country, on every continent, reject this vision. And they are seeking to restore what their parents and grand-parents had, a nation-state that is all their own.

Nationalists like Farage, who seek to pull their countries out of socialist superstates like the EU, and peoples seeking to secede and set up new nations like Scotland, Catalonia, Corsica and Veneto today, and Quebec yesterday, are no more anti-conservative than the American patriots of Lexington and Concord who also wanted a country of their own.

Why are European peoples who wish to halt mass migration from across the Med, to preserve who and what they are, decried as racists?

Did not the peoples of African and Middle Eastern countries, half a century ago, expel the European settlers who helped to build those countries?

The Rhodesia of Spitfire pilot Ian Smith was a jewel of a nation of 250,000 whites and several million blacks that produced trade surpluses even when boycotted and sanctioned by a hating world.

When Smith was forced to yield power, “Comrade Bob” Mugabe took over and began the looting of white Rhodesians, and led his Shona tribesmen in a slaughter of the Matabele of rival Joshua Nkomo.

Eighty-five percent of the white folks who lived in Rhodesia, prior to “majority rule,” are gone from Zimbabwe. More than half of the white folks who made South Africa the most advanced and prosperous country on the continent are gone.

Are these countries better places than they were? For whom?

Looking back over this 21st century, the transnational elite that envisions the endless erosion of national sovereignty, and the coming of a new world order of open borders, free trade and global custody of mankind’s destiny, has triggered a counter-revolution.

Does anyone think Angela Merkel looks like the future?

Consider the largest countries on earth.

In China, ethnonationalism, not the ruling Communist Party, unites and inspires 1.4 billion people to displace the Americans as the first power on earth.

Nationalism sustains Vladimir Putin. Nationalism and its unique identity as a Hindu nation unites and powers India.

Here, today, it is “America First” nationalism.

Indeed, now that George W. Bush’s crusade for democracy has ended up like Peter the Hermit’s Children’s Crusade, what is the vision, what is the historic goal our elites offer to inspire and enlist our people?

via Zero Hedge http://ift.tt/2GR3ij5 Tyler Durden

On February 1st, The Atlanta Fed’s GDPNOW model forecast Q1 GDP growth in the US economy would be 5.4%… and the world (on the right) celebrated.

As a reminder, that was the highest GDP forecast by the Atlanta Fed going back to Q1 2012:

We warned at the time that GDPNOW tended to drift lower after an exuberant open… and sure enough, less than a month later, things have gone downhill fast!

As of today, the latest forecast from The Atlanta Fed is just 2.6% GDP growth – a 52% tumble in expectations since the start of the month…

After this morning’s Advance Economic Indicators and durable manufacturing reports from the U.S. Census Bureau, the nowcasts of the contributions of real nonresidential equipment investment and real inventory investment to first-quarter real GDP growth declined from 0.45 percentage points and 1.20 percentage points, respectively, to 0.37 percentage points and 0.95 percentage points, respectively. The nowcast of first-quarter real residential investment growth declined from 0.6 percent on February 16 to -4.5 percent on February 26 after housing market releases from the Census Bureau and the National Association of Realtors.

And now below the concensus blue-chip estimate.

 

None of this should be a surprise – as this has been the pattern of the GDPNOW model’s trajectory for multiple years – and in fact this level of GDP growth is equal to the growth seen in Q1 2017 on its way to new lows…

via Zero Hedge http://ift.tt/2BU2gDt Tyler Durden

The United States has escalated international tensions with Iran, threatening unilateral action against the Islamic Republic on Monday after Russia vetoed a United Nations Security Council motion to call out Tehran for allowing weapons to fall into the hands of Yemen’s Houthi group.

“If Russia is going to continue to cover for Iran then the U.S. and our partners need to take action on our own. If we’re not going to get action on the council then we have to take our own actions,” said U.S. Ambassador Nikki Haley during a visit to the Honduran capital of Tegucigalpa. 

Haley did not specify what type of action she meant, however the Russian veto was a big blow to the United States which has been lobbying for months to hold Iran accountable at the U.N. – while also threatening to withhold waivers on U.S. sanctions unless the “terrible flaws of the Iran nuclear deal” are fixed. 

“Obviously this vote isn’t going to make the decision on the nuclear deal. What I can say is it doesn’t help,” Haley said. “That just validated a lot of what we already thought which is Iran gets a pass for its dangerous and illegal behavior.”

President Trump warned European allies in January that they would need to commit to fixing the nuclear deal by May 12. 

President Donald Trump warned European allies last month that they had to commit by mid-May to work with Washington to improve the pact. Britain drafted the failed U.N. resolution in consultation with the United States and France.

The initial draft text – to renew the annual mandate of a targeted sanctions regime related to Yemen – wanted to include a condemnation of Iran for violating an arms embargo on Houthi leaders and include a council commitment to take action over it. –Reuters

Russia has questioned the findings of January U.N. report which concluded that Iran supplied the Houthi group with weapons in a proxy war between the Saudi-backed Yemeni government forces and Iranian-allied Houthi rebels in what appears to be another attempted regime change in the region. 

In mid-January, Yemeni Houthi rebels claimed to have struck targets inside Saudi Arabia after launching two ballistic missiles, according to Houthi military media. Some pro-Houthi sources also reported the destruction of a Saudi military base in Najran, which lies in southwest Saudi Arabia near the border with Yemen.

This is fresh | #Saudi Defense Forces successfully intercept ballistic missile shot by #Iran backed #houthis towards #Najran – Saudi town at #Yemen border @a_albander
pic.twitter.com/5tgTGEMzgl

— حسن سجواني 🇦🇪 (@HSajwanization) January 12, 2018

Meanwhile, Saudi Arabia disputed that the missiles hit their targets, with Saudi state TV Ekhbariya reporting that Saudi missile defense has intercepted one near Jizan Regional Airport, a busy transport hub in southern Saudi Arabia, though it is unclear what happened to the reported second missile.

Following Monday’s Security Council vote, Iran’s mission to the U.N. accused the United States and Britain of abusing council privileges to “advance their political agenda and put the blame of all that happens in Yemen on Iran.”

Iran, meanwhile, has grown frustrated with what they’re getting out of the nuclear deal – with deputy foreign minister Abbas Araghchi telling a London audience last Thursday that they would likely pull out of the nuclear deal before the May 12 deadline if western banks don’t start doing business with them. 

Most of it is because of this atmosphere of uncertainty which President Trump has created around JCPOA, which prevents all big companies and banks to work with Iran, it’s a fact, and it’s a violation lead by the United States. -Abbas Araghchi

Araghchi also criticized President Trump for his increasing rhetoric over the nuclear deal:

You know, every time President Trump makes a public statement against JCPOA saying it’s a bad deal, it’s the worst deal ever, I am going to fix it, I am going to change it, all these statements, public statements are a violation of the deal. Violation of the letter of the deal, not a sprit, the letter. If you just see paragraph 28 it clearly says that all JCPOA participants should refrain from anything which undermines successful implementation of JCPOA, including in their public statements of silly officials.

“If the same policy of confusion and uncertainties about the (deal) continues, if companies and banks are not working with Iran, we cannot remain in a deal that has no benefit for us,” Araqchi told an audience at the London-based think tank Chatham House. “That’s a fact.”

via Zero Hedge http://ift.tt/2CpABLE Tyler Durden

Last October, we reported that the world’s oldest gold trader was for sale after a massive money laundering scandal may have terminally crippled one of the most iconic names in the business. According to the Financial Times, Canada’s Bank of Nova Scotia was exploring options for its gold business ScotiaMocatta, including a possible sale of Canada’s most popular precious metals trader. As reported at the time, Scotiabank made the decision to sell ScotiaMocatta following a massive money laundering scandal centered on a U.S. refinery that involved smuggled gold from South America.

The ScotiaMocatta business, a mainstay in PM trading, is one of London’s main gold trading banks and is being sold by JPMorgan.

As the FT further reported, while physical gold trading has been in a cyclical decline in recent years, the “straw that broke the camel’s back” in prompting the sale was Scotiabank’s lending to Elemetal, a precious metals refinery in Dallas. Scotiabank was one of its biggest lenders, they said. The problem emerged in March, when US prosecutors accused workers at a subsidiary of Elemetal, NTR Metals in Florida, of a money laundering scheme using “billions of dollars of criminally derived gold” mostly from Peru.

This is where the story took a turn into a slightly surreal detour.

NTR imported more than $3.6bn of gold from Latin America between 2012 and 2015, the court documents allege. Two of the accused, Samer Barrage and Juan Granda, pleaded guilty to a charge of money laundering in plea deals. After the story came to light in March, Elemetal was kicked off the London Bullion Market Association’s “Good Delivery List” of gold refiners.

To be sure, this was an almost instant death sentence for the company as buyers will usually only buy gold from a refiner on the list. Indeed, in the same month, New York’s Comex futures exchange said it was no longer taking gold from Elemetal for delivery against futures contracts in the world’s biggest gold futures market.

And this is where the scourge of gold rehypothecation emerged, as in the scandal surrounding Elemetal, it became impossible for holders of Elemetal gold to sell the gold bars on, leaving them sitting in bank vaults, according to traders quoted by the FT. Buyers are reluctant to take the gold, given the investigations.

This means that hundreds of millions in loans made to Elemetal by ScotiaMocatta are suddenly stuck in limbo. It also means that one of five bullion banks that settle gold trades in the London market, the world’s largest, has effectively been blackballed. It was built on the 1997 purchase by Scotiabank of Mocatta Bullion, which traces its roots back to 1671. And with Mocatta crippled, Scotiabank, which has the biggest foreign presence of any Canadian bank, is focusing its international strategy on the Pacific Alliance, a Latin American trade bloc comprising Mexico, Peru, Chile and Colombia. It will also hope to find a willing Chinese buyer for the gold trading operation.

Well, fast forward 4 months later, when the sale process of the terminally tainted Scotia Mocatta appears to have failed, because according to Bloomberg, Bank of Nova Scotia “plans to keep” its ScotiaMocatta metals trading business, ending months of speculation on a potential sale.

The Canadian bank wasted no time to give the failed sale process a favorable spin:

“We recently concluded a strategic review of this business and I’m pleased to confirm that most of our key services and our key markets and key clients will be continuing,” Dieter Jentsch, group head of global banking and markets, said Tuesday on a conference call with analysts.

The bad news: Scotia Mocatta will now see massive layoffs: “We will be exiting some markets, we will be simplifying our product suite, and we’ll be much more judicious about our allocation of capital and liquidity.”

As Bloomberg reminds us, Scotiabank acquired the London Metal Exchange gold-dealing unit from Standard Chartered Plc two decades ago.

The business has more than 160 employees and 10 offices worldwide, including New York, London, New Delhi, Mumbai, Hong Kong, Shanghai and Singapore, according to the bank’s website.

And so the chapter on the world’s oldest gold traders comes to a close: ScotiaMocatta traces its origins to 1671 and is one of a dozen firms behind the London gold fix. It’s also part of a group of nine banks that sets the silver price in London. And, in light of the ongoing scandal that may have permanently tainted Scotia, preventing it from winning new warehousing business, the fabled history of one of the most venerable precious metal traders is likely to come to an end in the very near future.

via Zero Hedge http://ift.tt/2EYiOsB Tyler Durden

Authored by Simon Black via SovereignMan.com,

Over the weekend on Saturday morning, amid its usual fanfare and attention, Warren Buffett’s company Berkshire Hathaway released its annual report to the public.

This is a pretty big deal each year. Investors and financial reporters typically wait with baited breath to hear what the Oracle himself has to say in his legendary annual letter.

Buffett’s topics in previous letters have covered a lot of ground– the state of the US economy, value investing education, why Wall Street is so deeply flawed, commentary on financial markets, etc.

This year’s letter was, as usual, quite interesting… but primarily because of what Buffett said about his own business.

Berkshire Hathaway is an enormous enterprise; it’s essentially a $500 billion holding company that owns dozens of smaller businesses, all of which collectively generate tens of billions in free cash flow.

Buffett’s primary mission is to acquire more businesses and expand Berkshire’s portfolio… and then ensure that each of those subsidiaries has top quality management to grow the cashflow.

And that’s what was so interesting about this year’s letter: Buffett couldn’t really do his job.

According to Warren Buffett himself:

In our search for new stand-alone businesses, the key qualities we seek are durable competitive strengths; able and high-grade management; good returns on the net tangible assets required to operate the business; opportunities for internal growth at attractive returns; and, finally, a sensible purchase price.

That last requirement proved a barrier to virtually all deals we reviewed in 2017, as prices for decent, but far from spectacular, businesses hit an all-time high.

Now, consider that Berkshire Hathaway’s cash pile rose to an astonishing $116 billion at the end of 2017.

With that much money on hand, very few companies are out of Buffett’s reach.

Specifically, $116 billion would have been enough money to acquire any one of 465 out of the 500 largest companies in the United States– including Nike, Starbucks, UPS, Netflix, and Ford.

Even more, Buffett had enough cash to collectively acquire a full TWENTY FIVE of the smallest companies in the S&P 500 (including AutoNation, Staples, Bed Bath & Beyond) and still have several billion dollars left over.

But he didn’t.

Even though one of his key roles is to acquire businesses and bring them into the Berkshire Hathaway tent, he didn’t acquire a single one of those companies.

Why? Because they’re ALL overpriced.

Read that quote again: “[P]rices for decent, but far from spectacular, businesses hit an all-time high.”

He went on to write, “Indeed, price seemed almost irrelevant to an army of optimistic purchasers.”

Investors are essentially paying record prices for shares of businesses that aren’t even all that great.

Now, Buffett didn’t specifically advise people to avoid stocks. But actions speak louder than words. And Buffet’s not buying.

Think about that: one of the richest guys in the world– one of the most successful investors in history– thinks assets are too expensive to buy.

People don’t tend to get rich (or stay that way) by buying mediocre assets at all-time highs.

The time to buy is when prices crash… when the highest quality assets can be acquired for peanuts.

And as sure as night follows day, prices will decline. Asset prices always move in boom/bust cycles.

As Buffett himself wrote in the annual report,

In the next 53 years our shares (and others) will experience declines resembling those in the table. No one can tell you when these will happen. The light can at any time go from green to red without pausing at yellow.

He knows there will always be periods of panic and fear when asset prices crash. But “[w]hen major declines occur, however, they offer extraordinary opportunities. . .”

Taking advantage of these opportunities requires having sufficient ammunition. Namely, cash.

If you want to be able to acquire the highest quality assets when prices crash, you have to be liquid. You can’t have your wealth tied up in illiquid assets whose prices have just crashed.

This is another area where Buffett’s actions speak louder than words.

Over the course of 2017, he increased Berkshire Hathaway’s cash position to $116 billion– a whopping 35% increase over the previous year.

Put these two observations together: Buffett’s NOT buying… and he’s greatly increasing his cash position.

It’s almost as if he’s preparing for a major decline… and getting ready to pounce when assets are cheap.

Actions speak louder than words. And his actions are definitely worth considering.

And to continue learning how to safely grow your wealth, I encourage you to download our free Perfect Plan B Guide.

via Zero Hedge http://ift.tt/2CLx9H4 Tyler Durden

Echoing The Fed’s Outlook report, Fed Chair Jay Powell warned Congress in the Q&A this morning that he “sees some high prices.”

Ahead of Fed Chair Powell’s first semi-annual monetary policy report to Congress next week (brought forward to 2/27), The Fed has released his prepared remarks warning that “valuations are still elevated across a range of asset classes” and fears “signs of rising non-financial leverage.”

Stocks pushed towards the lows of the day after his comment, not helped by his additional hawkish comment that he has strengthened his outlook for the economy since December…

 

All major indices are now in the red since Powell began his testimony…

 

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