Warren Buffett Priced in Gold

Can you say bubble? Or, more to the point, can you say bursting?

Warren Buffett loves to bash gold — claiming that stocks are inherently superior, because they produce a return, whereas gold just sits.  Trouble is, stocks (and all paper assets) are subject to counter-party risk, whereas physical gold isn’t. Gold doesn’t overcompensate its CEOs, it doesn’t leverage its productive capital in toxic derivatives, it doesn’t cause industrial disasters like Deepwater Horizon, its value isn’t dependent on central banking, or securitisation, or American imperialism, or the machinations of the military-industrial complex. It just sits, retaining its purchasing power.

Warren Buffett had a great ride: he grew his wealth and businesses in an era of unprecedented growth powered by OPEC oil, and later by Chinese industrialism. That era — the era of the American free lunch — is coming to an end.  His insights are applicable to that era. Today is a different world.

33 thoughts on “Warren Buffett Priced in Gold

  1. That’s a super graph, thanks. I’d love to hear Buffets reaction to it.

    I’m quite happy with the senile old fools constant attacks on gold because the gold bull needs to rise slowly for a nice steady continuation. The more Buffet and his CNBC pals attack gold, the longer I expect it to rise. Heaven forbid they should all turn bullish because that will guarantee the top is in.

      • 2008 was a paradigm shift for the western world. If Buffet, Bartiromo and Cramer saw and comprehended what happen in 2008, it would be an inflection point.

        I know techie in Silcon Valley who used most of savings to buy 1 share of Berckshire Hathaway just to go to his annual shareholder meetings. When I told him that Buffet may have lost his touch because much of his portfolio was in bank stocks, insurance products and derivatives during the 2008 crash and without the bailouts Buffet (and his shareholders) would be much pooer, well, lets just say the cult of personality is alive an well in the USA.

  2. He does have a point. If you invested in a wage slave valued in gold, the slave would bring in your harvest, and you would have more wealth. Productivity counts.

    I watch CNBC to understand what the average investor is thinking. Weight of money moves markets. That is why Bernanke has droppoed rates. Think of it from the perspective of a CNBC viewer. Rates are low. We have doubled the Dow etc. Economic indicators are stabilising.


    And other Global Dow components have monopolies on the global front. Regardless, if you own these stocks you own the future of business. This is why he is an Oligarch. You have 60 years of business, rubbing shoulders with other industrialists, bankers, politicians. That counts for some pretty deep insight.

    Short of an all out war, and $150-200 bbl Oil, I think the US economy will stabilise, and this will support World Wide Growth. See following some positive indicators I have been collecting:

    http://finance.yahoo.com/q/bc?s=000010.SS (uptrend despite news China is in Trouble)

    http://www.smartmoney.com/quote/BLL/?story=charting (one of many paper and packaging companies seeing increased orders – Consumption of goods in USA)

    I have many more. But generally it is showing stability, especially employment, consumer confidence, lending and investment. And if you remove yourself from the many stories that are negative (Because they tell the truth) and think about it from the perspective of the MSM viewers, you will understand that Business will get ahead of the curve, use cash to consolidate weaker rivals, purchase new machinery and employ new staff.

    The biggest problem is how will Bernanke raise rates, and the Federal Government control its deficit.
    that in business you sell to the masses not the Illuminati.

    Damn! I was feeling positive today!

    • The three rules of leverage that I just made-up on the spot.

      Leverage amplifies bothe the gains and losses of an investment

      Leverage is offered to those with money first

      The more money you have, the cheaper leverage becomes.

      It is not strange that Large Cap companies are doing well today. They have access to free money that allows them to leverage up and increase profits.

      Of course the flip side is, when the free money flows stops, that leverage will increase the size of the losses.

      That leverage is currently not offered to the lower and middle class in the USA, which, IMHO, is why you see the bifurcation in many of the western economies. Mr. Buffet is the perfect example. He gets access to virtually free money (IR at below the US 10 year). I other the hand would have to pay 7-8% for access to that same money.

    • But generally it is showing stability, especially employment, consumer confidence, lending and investment.

      Two words, Buddy:

      Counterparty Risk.

      Everything is still endangered by a few big defaults. Simply the American financial system is extremely fragile. You don’t need an oil spike, or an all-out war to have problems.

      Plus I think a lot of the positive numbers are (euphemistically) questionable. The old inflation numbers would show we were running at 9%, and the old unemployment numbers would show 16% unemployment. This is a depression, no matter how much corporate profits go up, or how high Apple’s share price goes.

      As for Buffett’s claim that productive assets are better than gold, then yeah, he’s right. Not all stocks are productive assets, though. What if the worker you hired had a grudge against you and burnt down your farm? Jon Corzine did it… Would you take the gold or the “productive asset”? Productive assets can end up as liabilities, too, as I detailed in the article. Stocks are still expensive in terms of their historical relationship to gold.

      • My point is confidence is key. In the old days a stretch of good weather and a full harvest meant passing caravans did brisk trade. It is no different today. If you keep the headlines positive, with data that is manipulated (Your employed if you work x hours per week etc) it keeps sheeple confident.

        I think people are gaining confidence, why would they shop and put on plastic?

        The powers understand this – “The only thing we have to fear is fear itself”

        However unlike back then, the US was not on so much debt.

        You mention a Debt Jubillee. Read Talmudic elaboration on this. Remember the Bible is only one book in the series of the progression of laws.

        • Confidence is an irrelevant economic indicator. It is a psychological indicator. Just because I feel good about the stability of the economy doesn’t mean I can afford to buy another house with a sub-prime mortgage. Nor does it allow me to continue to be a consumer driven by debt I cannot afford to eventually pay off in the future.

          Exaggerated corporate profits are easily obtained when conglomerates export said profits at the sake of the devalued dollar at the whim of Bernanke’s monetary policies.

          Disastrous government debt burden will be the end of the USA along with failed political economic policies. The old expression, “If it isn’t broke, don’t fix it” has been transformed in D.C. from both the Fed and government, “If it isn’t working, don’t fix it.”

  3. Buffet doesn’t understand that gold is money primarily – but in an age of paper money, it’s also an investment. By the way John, is this really your email – azizonomics dot aol dot co dot uk – don’t you want an @ in there?

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    • I just made a reference to that a moment ago. It is officially frightening when central planners, uh, I mean bankers, are now going to be getting long equities. When the selling starts, stand clear, it is going to make the ‘Flash Crash’ and 1987 and 1929 look like a pimple. Market halts and limit down across the board.

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  13. Excellent chart and analysis. Warren doesn’t like it – gold – because he cannot control it. As I see China, India and Russia building their gold reserves, it makes one wonder the fate of the dollar and the future of the industrialized world.

    • Warren doesn’t like it – gold – because he cannot control it.

      Very interesting point. Warren cannot just lobby the Fed to print more if his investment in BAC goes awry.

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