Is a 2021 market crash inevitable? It appears Warren Buffett is waiting for the other shoe to drop based on the stock market behaviour of late. On the last trading day of January, all three U.S. benchmarks finished lower. For the Dow Jones index, it was the worst week since October 2020.
The Congressional Budget Office predicts it would take the U.S. economy to recover its pre-pandemic size until the middle of 2021. Buffett’s right-hand man at Berkshire Hathaway, Charles Munger, cautions about a speculative frenzy in the stock market. He also laments the lack of bargains.
Meanwhile, the price of silver is rising. The buying frenzy in silver mining stocks is boosting gold prices. Eugen Weinberg, head of commodities research at Commerzbank, expects the buying craze to go on for some time, with other metals and commodities joining the rallies.
In 2000, the GOAT of investing wrote a letter to Berkshire shareholders regarding the “tech wreck.” Buffett said then that the line separating investment and speculation is never bright and clear, and blurs further when most market players enjoy gains or triumphs.
The same thing seems to be happening now. With stock prices soaring, market participants are mesmerized. There’s no regard for huge valuations and anything else. Back then, Buffett said money is piling into businesses that are sure to end up modest if not no value.
Buffett’s letter includes a warning that says, “A pin lies in wait for every bubble.” According to the legendary investor, speculation is most dangerous when it looks easiest.
The Toronto Stock Exchange (TSX) also dropped nearly 2%, like the Dow Jones on January 29, 2021. However, the index rebounded by 2.1% on the next trading day. Thus far, the TSX is gaining by 1.5%. While the stock market shows resiliency, the rally might not sustain.
The biggest threat to the market is the coronavirus mutation, where the new variants are more transmissible than the earlier ones. Canada might resort to more restrictive measures to contain the spread while vaccinations are ongoing. A national lockdown in the U.S. could have a crippling effect across the border too.
For the first time in his investing career, Warren Buffett took a position in gold. Berkshire Hathaway ditched its entire holdings in Restaurant Brands International after Q1 2020, then bought Barrick Gold (TSX:ABX)(NYSE:GOLD) shares.
As of February 1, 2021, Barrick’s price of $29 is 20.4% higher than it was a year ago, although the price is flat year-to-date. The $51.56 billion gold and copper producer also pays a modest 1.58% dividend. If Warren Buffett holds his 12 million shares this year, Berkshire Hathaway will collect $348 million in dividends.
Barrick Gold is one of the world’s largest mining companies, with 16 operating sites in 13 countries. In Canada, it’s among the largest firm (rank 11). Expect Barrick to further unlock its value in 2021 as it continues to ramp up its production output.
Barrick Gold is a tier-one gold asset. The company has a reserve potential to deliver a minimum 10-year life at an annual production of at least be 500,000 ounces of the precious metal. Warren Buffett will scoff at anyone who says bitcoin is a better safety net than gold.
Speaking of Warren Buffett expecting the stock market bubble to burst market in 2021...
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