Wednesday, July 18, 2012

Buffett Breaks His Cardinal Rule And Invests In IBM (Technology) - Part One

I believe IBM is putting in a major top in the first half of this year.  Possibly the top of my life time.  Or, depending on how the future unfolds, it's ultimate top.  Forever.  There are many outcomes to this crisis where that is most than possible but even plausible. We'll talk more of that in my upcoming Buffett-IBM post.  – A March 8, 2012 post on here regarding the coming tipping point of financial markets.

I would encourage readers to consider this post and the next even if they aren't focused on finance, economics or investing.   I suspect for many these posts will open their eyes to dynamics that are widespread across every segment of corporate America - the vast majority of our economic model is derived through some form of predation, victimization and violence against society, other corporations, democracy and individuals.    This post will help create a greater awareness to those dynamics that extend well beyond banking to include food, health care, agriculture, technology, chemicals, pharma, military contractors, security contractors and on and on and on.

I'm splitting this topic into two posts.  This post is a baseline provision of background information and the next post will be my analysis.  An analysis that I believe exposes Buffett's decision to invest in technology and IBM as a very flawed error that will prove costly.

We clearly live in a unsustainable dynamic that is most assuredly going to resolve itself quite rapidly.   In other words, we won't have some decades-long economic slow burn as has happened in Japan with their two lost decades of economic malaise.  As I have noted continuously for the last seven years, this crisis has nothing to do with debt or housing or a banking-specific dynamic.  Those are simply symptoms that you see with your eyes.   Re-regulating private, for-profit banking and even writing down debt simply masks over some symptoms of economic predation and violence for some period of time.  These efforts would do nothing to resolve the fundamental issues facing the United States and the world economy.  Debt didn't cause the Great Depression and debt isn't the cause of this crisis either.  This is a full-fledged global economic collapse.   And, that collapse is driven by widespread and unsustainable predation, victimization and violence everywhere. 

As I have noted countless times over the last seven years, I expect the U.S. to lead the world economy out of this crisis.  Future crises and even horror may come first but if one understands anything about globalization and economics, and one has any concept of economic freedom, this is really the only legitimate outcome. 

I have called many coming turn dates and events over the last seven years.  That includes the coming crisis of our banking system, the Chinese and Russian stock market collapses, coming global economic volatility and chaos, the auto industry bust, the 2008 gold collapse, the attractiveness of gold stocks after their collapse, the euro disaster, financial market collapses, the municipality and state fiscal crises, the commodities and oil bust, the asset reflation rally of 2009, the peak in banking stocks in early 2011, etc, etc, etc.    Those and more were written of generally before anyone in the financial or economic community even acknowledged there were issues.  And, they have already come to pass.   There are countless more outcomes that I have called that are all in the process of a similar fate.    Two of those are the ends to current methods of trade settlement (ie, most likely an end to the concept of a reserve currency), and the coming collapse in corporatism and, therefore, the coming bust that will consume many corporations or large chunks of their business models.   Both of those factors will play a major role in the fate of IBM and other multinational firms.  Although I don't share much of the detail behind my work, most everything I write is based upon data, science and fact, where available.   There is a lot of hard work behind those calls.   And, that is why they are most often accurate to a large degree. 

So, as I have been writing since 2008, that collapse was a primer.  The coming back end of this storm will be far worse.  And, it will be global.  So, with a track record of performance not rhetoric, I'm going to share another little known fact as it pertains to this very instant in time.  One that political stooges, banksters and corporate bureaucrats most certainly aren't aware of.  That is, at this very moment corporate balance sheets across the board are deteriorating at a rate not seen at any time in the last twelve years.  Yes, that's right.  Worse than anything experienced under George Bush.   This ties in very nicely with my game theory post that corporations are headed for a massive hard landing and that many major corporate names will very likely disappear in coming years.  It also ties nicely with our long time thesis that we are in the midst of a massive profit and financial bubble that is unprecedented in our nation's history.  A bubble that is going to pop and have wide-ranging implications beyond that of which anyone is talking about.  Now, this is change you can believe in.  Because unlike political rhetoric and endless financial opinion, this is real and it's unstoppable.  The seeds have been sewn and now we reap our reward for fraud, corruption, predation and violence that defines globalization, banking and politics. 

It’s probably been five years since I have uttered these words on here but I hate technology stocks as an investment.   I wrote that I hated them before the 2008 crash and I hate them even more today.  Now, hate is a strong word but I'm trying to convey a very clear point.  The technology stocks in the market today are horrible investments whose time has come and gone.  Forever.   But the fantasies of another technology stock bubble similar to the late 1990s remain indelibly imprinted in the minds of an investor class; a wholesale group of gambling addicts and economic dunces.

Back in 2006 we discussed that IBM's stock could be headed  into the mid $40s or even the mid $20s where there was finally strong support.   Then in the 2008 collapse the stock traded down to about $70.  Since the speculative bubble has been re-ignited with endless free money for Wall Street criminals the stock has recently traded around $200. (For the last six months or so.)   Absolutely nothing has changed on IBM's ultimate value or fate.  That is, nothing except the financial bubble is simply bigger courtesy of Barack Obama, George Bush, Democrats, Republicans, Wall Street, the Justice Department, financial regulators and the Federal Reserve.  

On the note of a larger bubble, early this year I wrote that IBM was possibly being used by large/institutional traders to manipulate the Dow given about a quarter of the Dow's advance since late last year has been because of IBM alone.     There are thirty stocks in the Dow.  One must appreciate that when a single company is responsible for much of the Dow's gains, the market is simply biding time before it heads lower.  Whether than was a contrived manipulation to dump stocks to fools at higher prices or simply the momentum trade that is so prevalent with "quantitative" stock pools (Great Depression era corruption reborn today) or some other reason, no one really knows.  No single person has a clear picture of all of the moving parts.   I also wrote, as noted above, that IBM could be putting in a permanent top.   As I have noted quite a few times, I think it's quite possible, although I am not predicting it, that the stock market as we know it could disappear forever in the next decade.  It's really not that far-fetched.   And our society wouldn't miss a beat were it to happen.   Well, other than the dynamics that might lead up to such an event that would devastate the investor class.  Of course, that is one our our long term theses on here anyway.  That is one of the most clearly certain outcomes that I have called for on here.  And, there is no hedge that is going to save them.  There is no place to hide.   

Warren Buffett has become the greatest investor of our time both by buying companies and taking large stakes in companies over the last 25+ years.  The majority of Buffett's wealth can be attributed to investments benefiting from the financialization of America's economy; a dynamic we have written about ad nauseam for the last seven years.   Buffett's success is very exposed given he is substantially invested in that financialization, corporatism and the status quo.  In other words, as the biggest financial and profit bubble in history deflates/pops, so too can we expect Buffett's perceived brilliance to pop with it.   This really isn't that difficult to understand.  In the Great Depression, all of the perceived Wall Street genius ended up destitute or bankrupt.  Some even committed suicide because of it.

Late last year Buffett broke his cardinal rule of steering clear of technology investing and took a position in IBM within a handful of percentage points of its all time high.   From what I can tell, his investment baseline is probably somewhere around $180 a share.  It’s really irrelevant what his basis is.   IBM is so astronomically overvalued that any concern about acquisition costs  are splitting hairs.  What’s relevant is that Buffett made a late stage investment in a company whose business model and share price are not sustainable.    He will most certainly come to regret that decision.

Most everything that I am going to write in the next post is not unique to IBM but are generalized systemic issues across countless companies in every industry.  I'm simply using Buffett's investment to highlight a particular example of how the system is unsustainable regardless of whether it is IBM, Apple, Boeing, Goldman Sachs, Dow Chemical, Monsanto, Cargill or literally countless others.  And I do mean countless. ie, Hundreds of major firms and thousands of total firms.  There are specific manifestations I will talk about in the next post as it applies to business consulting/business information technology firms but the generalized issues are contained within countless numbers of firms.  That is, a predatory business model, a hollowing out or financialization of many nonfinancial firms, a substantial systemic risk to the profit bubble and an even greater risk of coming systemic corporate failure on some substantial level.  
posted by TimingLogic at 12:40 PM