Did Buffett really give me a Sell signal?

In my previous blog, this is what I wrote:

“I see that Buffett has for the very first time bought Amazon shares. He had previously ignored this company as they were in a shunned tech sector. He was famous for sitting out the Dotcom boom in the 1990s saying: ‘I don’t understand them’.

“And by avoiding Amazon, he missed out on a ten-fold gain since the millennium! Only now they have reached the stratosphere is he suddenly bullish! Is this an extreme case of FOMO? My question: Is the Sage of Omaha really human like the rest of us?

So is this a watershed and massive Sell Signal?”

And last week, the Nasdaq dropped over 200 points. Here is the AMZ chart

It is a textbook five down/three up. And Buffet was buying right near the high.

Of course, with such a diversified portfolio, he is bound to get some clangers, but his overall investment style is to ‘buy value’. For fun and information, why not take a look at his portfolio? Berkshire Hathaway is in reality its own share index!

But note the avoidance of tech shares (except Apple) – until the recent Amazon purchase.

So does his latest AMZ purchase fit that recipe of ‘value’, or is it a case of extreme FOMO (Fear Of Missing Out) that finally got to him?

So this brings up the ultimate contrarian query: Buffett is widely regarded as a god of the investment world and can do no wrong – is his halo finally slipping? And is his style now becoming toxic as markets begin a hefty correction?

And last week, it was revealed Amazon was subject to an almighty hack last year with merchants’ accounts being looted. It comes on the heels of more negative accusations on AMZ from its practice of copying products sold on its Markeplace and under-cutting merchants.

One of Buffett’s top five holdings is in Kraft-Heinz which has recently suffered a major collapse from accounting irregularities’ (aka fraud). Here is the sad-looking chart

Since Buffett’s holding are so huge, any hint he is thinking of selling will surely drive the share price even lower. So he’s stuck with this lemon. He doesn’t appear so clever now!

And now Saint Warren is embroiled in a fraud in one of his solar companies. The $377 million charge is chicken feed, though as his portfolio is valued at $190 billion. But it will carry some reputational damage.

Global politics is in flux

Of course, this is just one symptom of the roll-over of social mood that is putting a lid on the stock market rallies. Fermenting anger walks the streets from the Jilets Jaunes in France to the ruling elite’s mauling in the local UK elections. And it seems a repeat performance will be delivered in spades on May 23 in the European elections.

Right-wing anti-EU parties are gathering strength in many EU nations as the populace rise up against the establishments. I referred to the French Revolution last time as a dramatic way to highlight this movement.

Also, violent crime in London and also in other UK cities is rising with knife crime rampant with London stabbings alone reaching 1,300 in the first four months of the year. As I say, anger walks the streets.

This is a sign of a darkening mood – and a very bearish indicator for stock markets.

No lift in Lyft

With the mammoth Uber IPO almost upon us, its arch-rival Lyft continues to plunge off its first-day burst of enthusiasm.

With the loss of 40% off the first day high, are investors finally seeing reason? Both Uber and Lyft are massively loss-making operations – and will continue to be so for some time. They are really cash-burning firms.

In fact, over a record-making 80% of recent IPOs have been loss-making at launch. This shows complacency had run completely amok, but is Lyft’s coming down to earth a sign of a top in the general market where earnings will become a lot more important that hype in the months and years ahead?

Real Estate is topping

One of the measures of the post-Credit Crash of 2008 ‘irrational exuberance’ in US real estate is the extent to which flippers operate – and their attitudes to setbacks. Flippers are at the extreme end of the speculative spectrum.

Here is a fascinating – and informative – Bloomberg story – House flippers get their first taste of losing -on US house flippers. Do read it as it speaks volumes of the prevailing re-emergence of the ‘houses never go down’ sentiment that has pervaded the real estate market for ten years. In a nutshell, this is complacency on steroids.

I just love this one quote of a young flipper (who probably was in junior school during the Credit Crunch debacle): “Pan couldn’t afford to wait for a rebound. The holding costs alone for three properties he was trying to dump totaled $30,000 a month. The home sold for less than $1.7 million, or more than $80,000 below what he paid for it. “When you buy these houses, you never think you’ll lose money,” he says. “I fixed it up. It should be worth more, but things change.”

Ten years of stupendous yearly increases in home values was enough to lull him (and many others) into the fatally false sense of security that ended in disaster.

In the UK we have our own smaller version of this US phenomenon in TV shows such as Homes under the Hammer where run-down houses (US: fixer-uppers) are bought at auction and are ‘done up’ (remodeled) quickly for either re-sale or rental.

This plethora of TV property shows in the UK and US have encouraged a while army of would-be property developers who see the shows and are seduced into believing the road to riches is easy, This is a classic set-up for a major reversal in the market as initial success breeds fatal over-confidence. Already we are seeing an exodus of investors from buy-to-let as tax changes become a major headwind.

The big difference between the UK and US is that in the former market, the borrower is liable to re-pay the loan/mortgage even if in negative equity. In the US, mortgages are non-recourse and an under-water owner can simply push the keys through the bank’s letterbox with no further obligations. This happened a lot in 2007/2008 as you may recall.

So how can trader make money from this change in trend? Last week I had a COTW for Interactive Investor on Taylor Wimpey – a major UK housebuilder. And this the chart I showed

The amazing feature is the wipe-out from the 2007 high at 400p to the Credit Crunch low of 3p – a loss of a m,ere 99.2%!! Yes, that is not a misprint. Selling was so intense even under 10p there were masses of sellers! That demonstrates the intense hate investors had for housebuilders as they saw the end of the world was nigh – until the Fed and BoE stepped in, of course.

And that was the Buy of a lifetime – and time to fill yer boots! I wonder how many investors took that opportunity? But a chartist scanning that chart in December 2007 would have noted the extreme momentum divergence – and acted.

So now the shares have retraced a Fibonacci 62% of that debacle and I believe are headed lower, despite the 6% yield.

Global tensions are on the rise

North Korea is rattling sabres with more missile tests and Iran is heading up the agenda for the US with an aircraft carrier heading that way. A big bust-up looms between the EU (who want to trade with Iran) and the US (who wants to increase sanctions). Trump may well turn up the heat with more tariffs on a wider range of EU imports.

This will almost certainly ensure US agriculture will remain being excluded from the EU as it shows no inclination to play ball. Already, corn, soybeans and wheat ate plumbing new lows as I write.

This is not bullish for shares.