Word: buffett
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Still, the jump in price spread chaos across the market as Buffett called for delivery of more than 42 million oz. of the silver he had bought--after already having some 87 million oz. in tow. Panicky short sellers, who had borrowed silver and sold it in the expectation that the price would fall, had to swallow huge losses to complete the deals. Major buyers of silver like Eastman Kodak, which processes millions of ounces a year into film, faced big increases in raw-material costs. And everywhere families began eyeing grandma's precious flatware as a possible source...
...Buffett's purchases shifted vast amounts of silver from U.S. warehouses, where stocks of the metal were publicly listed, to warehouses in London that are not required to disclose how much they hold. That helped to keep the purchases under wraps. The disappearance caused a Canadian investor to sue the giant commodities-trading firm Phibro for deliberately hiding supplies of silver to push prices up. Phibro, a unit of the Travelers Group--whose shareholders include Buffett's Berkshire Hathaway holding company--denied the charge...
...Buffett's silver spree caught almost everyone off guard. After all, the man made his personal billions--$25 billion at last count--by buying and holding undervalued stocks. But silver doesn't even pay a dividend and, worse, costs money to store. So why on earth did Buffett use Berkshire to acquire 4,000 tons of silver--a cache weighing more than 10 Boeing 747s--at a cost of $650 million between July 25 and Jan. 12? Until then, Buffett hadn't owned an ounce in 30 years...
...starters, silver prices were down last summer. That made the metal a value play, something Buffett is good at. In fact, Buffett says in a statement that he saw a huge imbalance between the amount of silver available and the demand for it to make things like jewelry, photographic supplies, electronic components, mirrors and batteries. So he began buying because "equilibrium between supply and demand was only likely to be established by a somewhat higher price." Translation: It looked like a good deal...
More than most tycoons, Buffett is forthcoming, and there is no reason to doubt his word. But there's also a bigger picture that's worth a look. At Berkshire's annual meeting last year, Buffett warned that the stock market was presenting few bargains and that investors should expect dramatically lower returns. Just last fall he bought $2 billion of--gasp!--long-term Treasury bonds, an investment that betrays some concern about stocks. Now he turns around and buys enough silver to make the Hunts jealous. Could it be that Buffett has soured on the stock market...