In Barron's of February 9, there's a long article on why Buffet bought 130 million ounces of silver (on which he's already made a profit of 40%.)
The bottom line of this article is that Buffet probably noticed that the annual industrial consumption of silver has for some time exceeded the production of silver, and the stockpiles had gotten very low.
There's a striking graph accompanying the article. It shows silver prices from '89 to 97 holding in a pretty straight line, while the bullion inventories line plunges steadily downward. Looking at that graph, Buffet wouldn't need y2k to get a bright idea. I'm not saying y2k couldn't be consideration, but we don't have any evidence about that. (Except for a few of us like TM and Skipard, we'd sure all better keep our fingers crossed that the silver- fundamentals thesis and not the worldwide y2k recession one is the true one...)
Here are a couple of brief excerpts from this long Barron's piece:
"There are no interesting silver equities," declares Michael Metz, the chief strategist at CIBC Oppenheimer. "Buffet's play in silver... may mean Buffett can't find any cheap stocks. It might also be saying that the undervalued sector now is commodities."...
The Oppenheimer strategist notes, however, that silver is easily the most compelling story in the commodities markets right now. Since 1990, the amount used in fabricated products, ...has exceeded supplies of newly mined or refined silver. At the start of that period, massive inventories -- perhaps more than one billion ounces -- existed...By 1997, much of this had been used..."
Joe Rosta, of metals research firm CPM Group, theorizes that [Buffet's] move "may be a commentary that inflation will be higher in the future, [but] each market moves on it's own fundamentals. This move is clearly based upon silver's own fundamentals." |
