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Warren Buffett and The Great Crash
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Like many investors I love Warren Buffett. He has shown that common-sense investing can make you rich. The man's a billionaire, yet he lives humbly - he eats cheeseburgers and drinks Cherry Coke like the rest of us. What's not to like about the man? But recent news from the big guy has me nervous - real nervous.
Today, Buffett is in the news after making a $3 billion investment in GE (NYSE: GE), a stock that has been pounded recently on fears about its GE Capital business due to the ongoing credit crunch. Last week, Buffett made headlines after a similar $5 billion deal with Goldman Sachs (NYSE: GS), after it was dealing with questions about its own ability to fund its business. These look like sweetheart deals, where Buffett collects a cool 10% dividend on his preferred stock and the companies get the 'Buffett-Seal-Of-Approval' so they can sell common stock at a decent price.
Buffett is getting paid to wait, and these investments look great on paper. But these moves are clearly to boost confidence in the system, a system that needs it. And Buffett, who has made his billions from the great U.S. system, has reasons to keep it alive, along with every other American. But can he stop a crash? Can any one person or government stop it? God I hope so.
Frighteningly, if you look back at the days leading up to the Great Crash of 1929 you will see that another well-respected gentleman tried to restore confidence in the market. This man was J.P. Morgan. Morgan bought up shares of many high profile companies, including GE, to stop a market panic in October 1929. It worked for a little while, but by Monday October 28, there was another wave of selling and the next day was October 28 "Black Tuesday", arguably the worst day in the history of the stock market and the unofficial start of the Great Depression.
I sure hope history does not repeat itself in this case, but admittedly I'm scared (maybe a contrarian indicator!) and I've been buying Gold (NYSE: GLD). God spare my grandchildren from reading about Warren Buffett in the history books about the Great Crash II.
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