The world (of investing) according to Dante

(originally written Oct 21, 2011.  Part of Great Upload of 2013.)

It seems like the financial markets will have an “upwards bias” for the next few months, despite the circling-the-drain quality of the macroeconomic picture, which inspired this magazine cover from the Oct 1 issue of The Economist magazine.


If there’s anything I’ve learned over my years watching stocks (and, to be perfectly honest, there isn’t  ;) )  it’s to do the opposite of what The Economist says on its cover, a phenomenon known as the magazine cover indicator:

  • you’d’ve tripled your money in Ford in about two years by buying them after the July 2009 “Detroitosaurus Rex” issue
  • a couple months prior to that, the cover story “The Jobs Crisis” coincided with the bottom of the stock markets
  • of course, their timing is occasionally off; they did an oil-barrel cover in May 2008, and the price increased several percent into July before plummeting.

It would seem that a lot of people are worried that we’re heading for the economic equivalent of, say, Dante’s Eighth Circle of Hell (“fraud”).  And while we’ll probably get there  ;)  the world economy is more of an escalator than an elevator: it takes awhile to get where you’re going.

In consideration of the violence in Greece, let’s say we’ve only reached the Fifth Circle (“anger”).  Recognizing that things aren’t (yet) as catastrophically bad as they thought, money flows are probably going to (may already have begun to) celebrate ‘only’ being in the Fifth Circle of Hell, by pushing stocks upwards for the next few months.

Buffett, meet anti-Buffett

After teetering a bit in August, during which it (horrors!) dropped into quintuple digits, Warren Buffett’s Berkshire Hathaway stock has jumped solidly above $110,000.  Meaning that any mere mortals who took out second mortgages to buy one share, would’ve made a decent profit for a few weeks’ completely-indefensible reckless speculation.  ;)

A funny thing about Buffett is that in recent years, he’s turned into a kind of anti-particle to his former self.  After years — decades! — of criticizing stock buy-backs as a flimsy way for executives to increase a company’s stock price (dramatically increasing the value of stock options) without actually strengthening the company, he recently announced… a stock buyback.

He’s also mused about splitting the stock, despite years — decades! — of pooh-poohing the idea.  Besides, proles can already buy “junior shares” consisting of 1/1,500th of an actual share, trade around the $80 level.  (If you can’t buy the pyramid, buy a pyramid stone!)

And lastly, instead of buying stocks on the open market like he did for years — hmm, maybe I’ve belaboured the point — he’s more recently been doing deals where he gives money to cash-strapped “blue-chip” companies under highly favorable-to-him terms.  Since usurious loan-shark is a harsh anachronism to use on a guy who’s promised to give all his money to charity, let’s use a gentler contemporary term and say instead that legendary investor Mr. Buffett has recently reinvented himself as Wall Street’s biggest, baddest… payday loan operator.  :)

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