You Won't Believe What Buffett's Buying Now!
The Dynamic Wealth Report
November 21, 2011
by Robert Morris, Editor
Investors are downright skittish at the moment. The European Union's on
the verge of collapsing. And Europe's headed for what many believe will
be a decade long recession.
The worst part is, Europe is threatening to drag the entire global
economy into recession as well.
I'm not going to rehash all of the messy details here.
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The news media has done an ample job of describing the play by play. Just about everyone knows by now the serious predicaments facing Greece,
Italy, Spain, and perhaps even the strongest EU countries, France and
Germany.
The first three countries need cash infusions immediately to avoid
defaulting on their bonds. However, the EU won't provide any financial
support until the debt laden nations enact extreme austerity measures
(tax hikes and spending cuts).
The proposed measures in turn are hugely unpopular with the masses and
are generating significant social unrest.
What's more, the potential for a slew of sovereign defaults is
threatening to smash some of Europe's biggest banks. According to the
Federal Reserve Bank of St. Louis, European banks hold a whopping $2.7
trillion worth of bonds in danger of default.
If one or more EU countries default on their debt, Europe could slide
into a financial crisis like the US had in 2008.
But there's one big difference between the 2008 crisis and the one
happening now in Europe. The EU doesn't have a central bank like the
US Fed with authority to print money.
So, the fear is if Europe's banks start collapsing, the EU won't be able
to print its way out of trouble like the US did.
In the meantime, quickly shifting views of success for a bailout plan
are playing havoc with global stock markets. One day it looks like a
solution is at hand and stocks rally hard. The next day it looks like
the EU will fall apart and stocks tank.
The uncertainty surrounding this situation has the market bouncing up
and down like a yo-yo.
But just as every day has its dawn, every financial crisis has a silver
lining. And the world's greatest investor took a moment this morning to
remind everyone just what that silver lining is for the European crisis.
I'm talking about the Oracle of Omaha, Warren Buffett...
Buffet's known the world over as one of the greatest investors of all
time. The humble man from Omaha, Nebraska has spent 60 years amassing a
fortune few can rival. In 2011, Forbes listed Buffett as the third
richest man on the planet with a net worth of $39 billion.
The amazing thing is he built his fortune, and those of his many
investors, by investing in businesses.
So, what does Buffett think of the European crisis?
He sees a systemic problem in Europe. According to Buffett, Europe's
"system as presently designed has revealed a major flaw. Europe will
either have to come closer together or there will have to be some other
rearrangement because the system is not working."
And he's not sure Europe will find its way out of the morass...
When asked if the EU will survive the crisis, Buffet tersely replied...
"That's in doubt now."
As a result of the crisis, Buffett said he's steering clear of European
bonds. But his negative outlook doesn't extend to European stocks.
In fact, Buffett almost sounds giddy about the buying opportunities in
Europe. This morning, Buffett told reporters, "I can think of a dozen
European stocks that are quite attractive." And he went on to say,
"There are some wonderful businesses in Europe, and the prices have come
down on some of them."
Sounds like Buffett's putting together a shopping list for European
stocks.
In case there's any question on this point, Buffett emphatically
silenced any doubts this morning. The Oracle stunned reporters with this
little tidbit... "When I left Omaha, I left an order to buy one European
stock which we will undoubtedly be buying today, and we'll probably be
buying it tomorrow and the next day and next week and next month."
No question about it, Buffett is zeroing in on a select bunch of
European stocks. He clearly sees several fundamentally sound businesses
worthy of investment.
The only thing stopping him from buying with both hands today is price.
Buffett is patiently waiting for better valuations before he strikes. But the time for action could be approaching soon. If you want to follow
Buffett's advice, you'd better get busy putting your own buy list
together.
Of course, if you want exposure to Europe, there's an easier way than
buying individual stocks. You can always invest in a European stock
exchange traded fund (ETF). One of the larger, more diversified ones out
there is iShares S&P Europe 350 Index (IEV).
IEV has over $1 billion in net assets invested in 350 of the largest
companies in Europe. The ETF holds both growth stocks and value stocks. And its holdings are spread across all 11 major sectors of the economy.
The only potential red flag is IEV's large position in European
financial stocks.
At the end of October, IEV had 18% of its assets invested in financial
services companies. If Europe's financial situation gets worse, as many
are expecting, we could see IEV take a big hit.
If you're thinking about adding exposure to European stocks beaten down
by the crisis, take a closer look at IEV. Just be careful about buying a
full position today. You may be able to pick up shares at bargain
basement prices in the weeks and months ahead.
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