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Cash, Apple, Buffett, the Kingdom, and U.S. Steel

Posted November 5, 2019

It’s a beautiful morning here in rural Maryland. The Baltimore Ravens beat the mighty Patriots of Boston, and the Dow futures are up 124 points. Right now, the DJIA is at 23,382, gold trades at $1,510.20 an ounce, and silver is at $18.18. All is right with the world.

Palladium is the big winner this year and is now up to $1,748. And in retrospect, we sold our physical rhodium too soon, as it is now a whopping $5,240 on the ask, up more than 500% since 2017.

Swimming in Cash

Berkshire Hathaway’s cash position is a record $122 billion, or 60% of its portfolio. Trading god Warren Buffett has been more right than he has been wrong over the years. It is his M.O. to build large cash positions at the top and swoop in with buys at the bottom. He did it in 2000 and again in 2009.

The down side of that strategy is that when the market is consistently moving higher, he has a long wait on the sidelines. One envies his tenacious patience.

That said, Warren Buffett is 89 years old, and I can’t help but think that Berkshire Hathaway will sell off when he dies despite the fact that he isn’t running day-to-day operations anymore.

Speaking of cash, I happened to be in the Columbia Mall on Friday night. My daughter wanted some kind of dongle for her iPhone. I don’t go to the mall often, but I tell you I was shocked by the number of shoppers, all of them toting bags.

I maintain that this Christmas season will be a barnburner. Everyone who wants a job has one, and the balance sheet of Middle America is better than ever, with less debt and more savings.  

Anyway, we got to the Apple Store. It had expanded into four traditional spaces, and there must have been 200 people in there, jam-packed over long tables. Each table had a waiting line three or four deep to buy something.

My wife asked, “What are they all doing here?”

Apple has some $225 billion in cash and securities. It reported $64 billion in revenue last quarter, up 2% from a year ago.

Apple has the best brand in the world, a tremendous history of success, a massive balance sheet, and trades at a forward P/E of 17, which seems very reasonable. The share price continues to hit new highs ($257.97). You could have bought shares for $1.03 (post-split) in June of 2003. 

Saudi Aramco IPO

The world's largest oil producer will list its company on the Riyadh stock exchange. I am long Saudi Arabia, as the boost in cash will spur MBS’s plans for diversification away from oil. It’s the very definition of a ground-floor opportunity.

Here are some facts about Saudi Aramco: Oil was first found by Standard Oil in 1938. The venture became known as Arabian American Oil Company, and it produced 500,000 barrels a day in 1949.  

By 1980, the Kingdom had bought out all the shareholders. Eight years later, the Saudi Arabian Oil Company (Saudi Aramco) was founded.

The company purported to have 260.2 billion barrels of oil equivalent in 2017. That’s more than ExxonMobil, Chevron, Shell, BP, and Total combined. The Kingdom estimates that the oil will last another 54 years.  

Last year, Saudi Aramco produced 10.3 million barrels of oil a day at the world’s lowest cost of $2.80 a barrel. Last year, profit was $111 billion.

MetCoke Conference

Tomorrow I’m off to the MetCoke Summit 2019. I’ll report back on the exciting world of coke, coal, and the steel industry.

Just last week, U.S. Steel surged 20% in a day on narrower than expected losses due to cost cutting and higher shipments of rolled steel for the quarter.

All the best,

Christian DeHaemer Signature

Christian DeHaemer

follow basic@TheDailyHammer on Twitter

Since 1995, Christian DeHaemer has specialized in frontier market opportunities. He has traveled extensively and invested in places as varied as Cuba, Mongolia, and Kenya. Chris believes the best way to make money is to get there first with the most. Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor's page.

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