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Will the global economy bleed in 2025? The stock god Buffett has made his own judgment. Just in the past few days, Buffett, holding $2 trillion in cash, finally began to take action. He first bought Domino's Pizza, followed by a significant purchase of stocks in Western Oil, Sirius, and Verizon. The stock market has a favorite Buffett indicator, which is the total market value of stocks divided by GDP to get a percentage. If it is greater than 100, it indicates that the stock market has a huge bubble. Currently, the Buffett indicator in the U.S. has soared to 209%, matching the level of the Great Crash in 1929, and far exceeding the 140% of the 2008 subprime mortgage crisis. This makes it understandable why, as of the third quarter of this year, Berkshire has net sold stocks for eight consecutive quarters, and Buffett even sold off $1 trillion worth of his favorite Apple stock. But the question is, why has he started buying stocks again? This round of year-end shopping by the stock god must indicate he has sensed something special!
If you observe closely, you will find that all clues and risks point to one target: oil. So why is Buffett focused on oil? On the surface, it seems that the key is the price. Since April this year, Western oil stocks have fallen by 35%, erasing almost all gains of over two years. This drop has brought the stock price of Western oil into Buffett's striking zone, which may be an enticing buying signal. However, for the stock market, his vision is certainly not limited to the current stock price. Hence, some say that Buffett is interested in the dividend yield of Western oil. The preferred shares of Western oil he holds can provide a dividend yield of up to 8%, while the ordinary shares of Western oil also yield nearly 2%. Together, Western oil can earn Buffett a passive income of 10% per year. In today's low-interest-rate environment, such a dividend yield is undoubtedly a solid moat. This argument makes sense, but at this point, have we completed the explanation of Buffett's investment logic? If we dig deeper, you will find that the fundamental reason Buffett is focusing on oil may be that he sees the global economic power being redistributed due to the loosening of petrodollar hegemony. In the mid-1970s, after the collapse of the Bretton Woods system, Saudi Arabia and other oil-exporting nations signed agreements to use the dollar as the settlement currency for international oil transactions. Since then, the dollar has been linked to oil; without dollars, you can't buy oil, which is called petrodollar. Saudi Arabia exchanged loyalty to the petrodollar for U.S. security assurances, and the income from exporting oil, after deducting import expenses, was mainly used to purchase U.S. Treasury bonds. Thus, the petrodollar not only provided the U.S. with low-cost financing but also played a key role in preventing the massive U.S. debt from collapsing.
But since last year, the situation has changed. In January last year, the Saudi finance minister publicly declared that Saudi Arabia is willing to introduce other currencies in oil trade. In June this year, Saudi Arabia joined the multilateral central bank digital currency bridge project led by the Bank for International Settlements and China, indicating that Saudi Arabia is unwilling to be held hostage by the dollar. Although currently no one dares to say that the petrodollar trade system has collapsed, once the petrodollar starts to weaken, will the U.S. gradually lose its dominant position in the global financial market? Of course, the problems we see are also visible to the Americans. For this reason, while Trump has not yet returned to the White House, he is already preparing for the future, using every means to strengthen the petrodollar's hegemonic position: firstly, to deal with the increasing fiscal deficit and debt levels in the U.S., trying to eliminate the debt ceiling; secondly, to threaten Europe. If they do not increase their purchases of American oil and gas, they will face sanctions from U.S. tariffs. On the other hand, the Russia-Ukraine conflict has further made countries realize the importance of oil and gas energy. The impact of war on oil is evident, such as the instability of the situation in Syria and the uncertainties regarding Iran and Israel since Trump's rise to power. All these factors combined add much uncertainty to next year's situation.
Looking back at Buffett's move to increase his stake in Western oil, perhaps the old man sensed the global economic situation next year earlier than we did. There may be many unexpected situations that could lead to a spike in oil prices. Perhaps this is the core reason for his large purchases of Western oil. What do you think?