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Warren Buffett Asked Me For Investment Advice

By Tom Dyson, publisher, The Palm Beach Letter
Thursday, June 21, 2007

Francisco Parames didn't expect to hear back from Warren Buffett...

Parames grew up studying Buffett's books and letters... and he only uses Buffett's ideas to make investments. Three months ago, Parames found a stock he liked. The more he researched, the more this stock looked like the perfect "Buffett" investment. So he did what any fan would do:

He wrote to Buffett and told him about the company.

A couple of weeks later, he got a huge surprise. Not only did Buffett reply, but he asked Parames for more investment advice.

"He actually answered me in a hand-written letter,'' Parames told Bloomberg. "He thanked me for the idea and also asked me a favor, if I could find very good private companies in Spain big enough for him to buy. So that's what I'm doing now."

Francisco Parames is from Spain. And he's not just another minnow investor with a crush on Warren Buffett...

Parames is one of the largest money managers in Spain, with more than $8 billion in funds under management. His Iberia Fund is up an average 27% a year for the last five years, making it the best-performing fund in Spain. Since 1999, he has beaten the IBEX 35 index – Madrid's equivalent of the Dow – every year.

As for Parames' stock tip, he says Buffett may still act on it so he's keeping it a secret. But I can tell you this: Parames hasn't managed to find any private Spanish companies to recommend to Warren Buffett yet.

You see, right now, Parames is very bearish on the Spanish economy. He is advising his countrymen to get their assets out of Spanish stocks and into international stocks. He has positioned his Iberia Fund as far from Spain as the fund's covenants let him.

We covered this story in DailyWealth two weeks ago. Spain has the largest property bubble in the world. Since 2000, house prices are up 100% after adjusting for inflation, more than in Ireland or the U.K.

Last year, more than 800,000 homes were under construction in Spain. That's more than France, Germany, and Italy combined... and about half the houses under construction in the U.S. (The U.S. population is six times the Spanish population.)

In order to pay these inflated house prices, Spaniards have to take out huge mortgages, and 90% of mortgages in Spain are adjustable... compared to less than 50% in the U.S.

In America, it's no problem if consumers feel pinched... the Fed just cuts interest rates and takes away the pressure. But the Spanish government has no control of interest rates. Spain is part of the euro. And interest rates are set to German and French considerations. Recently, euro interest rates have risen fast – they’re now at 4% from 2% 18 months ago – and the European Central Bank says it'll keep rising.

"Credit has increased by 25 percent a year for six years,'' Parames said. "That's never happened anywhere else in the world, even China."

The Spanish housing market is already starting to buckle. Spain's biggest real estate company – Metrovacesa – is already down by about one third. Astroc Mediterraneo – another popular real estate stock – went up 600% last year. It's down two thirds this year. Construction makes up 18% of Spain's total GDP, so the Spanish stock market will surely follow.

"A lot of people are going to be unemployed," says Parames. "Our most important bet is the one you can't see: That we don't bet on the Spanish economy, which is going to go through some very rough times because of the credit bubble."

International investors should keep an eye on this potential crash situation... you might be able to pick up a cheap Spanish villa in a year or two. Personally, I see this situation as another problem with the euro... and I think it's a good time to bet on a rise in the dollar.

Good investing,


Market Notes


Great news for ExxonMobil… $50 a barrel is now considered "cheap."

Since making a breathtaking 40% move in early 2005, crude oil has found the $50-$70 price range as comfortable as an old shoe… a range leading us to the conclusion that $70 is the price at which the market finds oil expensive… and $50 is the price at which the market finds oil cheap.

The great thing for shareholders of oil producers is, the new cheap price of oil is much, much higher than it was three years ago… a price that brings in torrents of cash to income statements… and finally, a price that makes owning Big Oil shares a no-brainer.

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