EC Is Grave Dancing “Extremely Dangerous”?

We have argued recently that since almost nobody is worried about inflation, there are wonderful opportunities for investments that would benefit from the crowd being wrong. One of the all-time great investors in these inflation-oriented assets is Chicago’s Sam Zell. Sam is affectionately called “The Grave Dancer” because he has amassed a multi-billion-dollar fortune buying hard assets from distressed buyers.

Here is what he said on November 14, 2019, on Bloomberg TV comparing buying real estate assets in the disarray of the bank/savings and loan crisis of the early 1990s to buying today’s oil properties:

“Where (in real estate) you had empty buildings all over the place and few investors had cash to play. These oil properties look like that now.”

Most investors consider what Sam Zell does as very risky. He provides ownership capital to projects in distress. Warren Buffett describes this by saying, “What the wise man does at the beginning, the fool does at the end.” Zell attempts to get in somewhere around the bottom when it appears that meritorious income-producing property is being left for dead. Hence the nickname, “The Grave Dancer.”

Sam’s latest investment arena is buying the income streams of oil properties in Colorado, California, and Texas. He said oil companies are preempting downside risk by obtaining capital from him and giving him incredibly attractive terms. He points out how big the void in the capital is available to the energy industry, specifically oil. We have argued this shows up in the percentage of the S&P 500 Index which is invested in energy (see chart below):

(Click on image to enlarge)

Ironically, as we were writing this piece, Berkshire Hathaway (BRK-B) announced that they began to buy Occidental Petroleum (OXY) in the third quarter of 2019 at what looks like prices around $45 per share. To understand why they are buying, you might review our missive entitled, “Buffett and Munger Would Say Buying OXY Is Easy.” You might say Buffett/Berkshire Hathaway is a “grave dancer” in quality common stocks with a high margin of safety.

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Disclosure: This article contains information and opinions based on data obtained from reliable sources, which is current as of the publication date, and does not constitute a recommendation ...

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Harry Goldstein 3 weeks ago Member's comment

So who is worried about inflation?