"If you wrapped up all the $100 bills in circulation...

[WarrenWatsa]

edit: wrong thread...meant for LUK thread

[Rabbitisrich]

 

 

I was referring to this quote of his:

 

"...gold is a great thing to sew onto your garments if you're a Jewish family in Vienna in 1939 but civilized people don't buy gold - they invest in productive businesses."

 

Maybe I am interpreting it wrong but he is basically making fun of people who buy gold thinking the shit will hit the fan (hence the holocaust reference.)

 

 

I was taken aback by the comment as well. But Liberty's interpretation is probably the correct one because the statement doesn't actually make sense if intended to denigrate refugees. Munger probably (hopefully!) meant "civilized" to refer to people living in civilization, and not to connote culture or elegance.

 

 

[Parsad]

Anyway, for the record, Buffett is against both gold and cash. Are people holding a lot of cash listening?

 

No!  ;D  We'll put it to work in a jiffy when the opportunity is right.  We have been buying a couple of things, but we still have alot of cash...and we aren't suffering from the low yields, believe me!  Cheers!

[link01]

with due deference to all those who believe in gold as a safe haven & a store of value, & can persuasively pontificate seven ways from sunday why it is especially compelling in todays turbulent climes, what about its valuation? mungofitch at TMF calls out its achilles heel well:

 

C'mon, man. The classic straw man was Buffett comparing gold to productive assets in his annual letter--get real.

 

Ummm, are you sure you know what a straw man is?

It's an alternative to the recommended course of action selected not

because it's viable, but specifically because it's not viable and would

be easy to dismiss, making the recommended course seem optimal if only by comparison.

 

In the context of an argument against gold, suggesting investment in

productive assets is not a straw man: it's a viable and sensible alternative.

 

Of course I suppose you could look it as the reverse: since the suggested

course of action is investment in productive assets, the mention of gold

is a straw man by comparison since it's so easy to demonstrate that it has no earning power.

So yes, you're right, Mr Buffett was using a trivial comparison to

demonstrate the obvious conclusion that productive assets are a better choice.

 

While on the general subject of buying shiny metals...

One argument against gold as an investment is rarely raised, and that's valuation.

A lot of folks say it's hard to value, but that doesn't mean it's not worth trying.

Traditionally the biggest selling point of gold is its ability to hold

its value more or less, on average through the centuries.

A corollary is that the price goes net nowhere: the average is pretty flat in purchasing power.

Thus, if you compare the price of gold in one or more currencies to the

historical average inflation-adjusted price in those same currencies,

you'll get an idea of its current valuation level.

It's not very accurate, but this might be one of those things where it's

better to be approximately right than precisely wrong. Gold was probably a good

deal a few years back (as good as it ever is, anyway) at under $400, but it's overpriced now.

The average ratio of the then-current price of gold to the then-current price of

a US dollar, inflation adjusted, has been $650 since 1969 in today's money.

To a first approximation, what you could buy for US$650 cash today is about

what you could buy in real terms with an ounce of gold in any typical year.

Though it's true that USD cash might lose half or more of its purchasing

power in the next few/several years, that seems like an outlier

outcome whereas it's the sensible central expectation for gold bought today.

Never mistake a cycle for a trend.

 

Jim

 

http://boards.fool.com/cmon-man-the-classic-straw-man-was-buffett-30069242.aspx

 

[txlaw]

Here's another thought that occurred to me.

 

Let's just say that gold is an alternative currency and that when you own gold as in investment, you are really making a long term currency trade, betting that, at a future date, people will trade you purchasing power in the form of paper currency (unlikely that you will be able to directly trade your gold for goods) for your gold that is greater than the purchasing power you paid up to purchase the gold.

 

In that case, how does one assess what amount of paper currency people will trade you for your gold in the future? 

 

My limited understanding of forex investing is that a currency will get stronger relative to other currencies based on various factors, including interest rates, general economic prospects of the country to which the currency belongs, balance of trade, capital flows, probability of money printing, probability of default, backing of the currency by hard resources, etc.  Ultimately, paper currency trades are based on what's going on in the issuing country.

 

But the gold currency has no backing of its value from a country-specific set of productive assets, natural resources, or general economic activity.  The value seems to be based solely on people's psychology regarding gold, or at best on the general notion that governments will print money and therefore gold will go up.  But even assuming that all governments will print money, why will gold go up if there is nothing backing the currency?

 

These are not rhetorical questions.

[moore_capital54]

A black swan for the gold bugs  ;)

 

http://aceflashman.wordpress.com/2009/10/27/solid-gold-asteroid-head-for-earth-world-economy-in-peril/

 

Complete nonsense.. only people with no understanding of geology or mining would even consider asteroid mining anymore than a pipe dream...

 

With regards to asteroids hitting the earth, the formation of gold in the earth's crust has been a process that has started nearly 1 billion years ago and primarily involves gold bearing fluids rising from the core into fractures in the rock as it cooled down depositing into various geologic formations. To think that gold is more abundant in space, on asteroids, or that one asteroid in 2021 will fall and deposit more gold in the world is just a complete joke, and proves how little most people know about the history of earth and crustal abundance of the elements.

 

Asteroids have been falling onto the earth for billions of years, and not one was solid gold. But sure in 9 years on a timeline of billions there will be a solid gold asteroid conveniently falling upon us... lol

 

Relating to valuation: The problem with valuing gold is it serves as a widget but also serves as a currency. If we look at it purely based on economic 101 dynamics, marginal cost for producers is currently 750-800 an ounce. That means gold should be worth around 1,000 if we include ROI otherwise mines will simply shut down. There are no two ways around this. It's not as though less demand for gold will cause mining costs to decline, that is not how it works. Mining costs are relatively fixed, with the exception of several higher grading mines like Red-Lake and/or Kinross's Kupol mine. Those two mines can produce gold at between 250-300 an ounce and are very high grade.

 

The additional delta between the marginal cost + ROI and current price is difficult to value because one most incorporate the investment/currency demand for gold. What the last decade has proven is that gold belongs in everyone's portfolio, whether as insurance (0.5%-1.0% allocation) or as a currency hedge (5-10%) we suggest somehwere in between for our clients, and have been suggesting this since the early 1990's when we first opened our firm. On a 3,000 year timeline, gold has always functioned as money while many versions of fiat currencies as well as empires/nations have come and gone. To think that gold will all of a sudden stop serving as money is infantile and lacks historical perspective. Since around 1971 the world has moved on to a total fiat money system whereby each sovereign nation is allowed to bail itself out by printing more money. For the first 30 years we saw the impact as quite positive given that asset prices simply kept rising with each new round of prinitng and a sort of wealth effect took place. Since 2006 this has stopped working, Asset prices no longer react positively to increases in printing as there is too much debt in the system, causing capital to flow to unproductive areas of the economy (servicing compounding debt).

 

The environment we are currently living through where real interest rates are probably a negative 1-2% is very advantageous for gold as it does not punish gold holders too badly for buying gold instead of holding fiat currency. For this reason and the reasons stated above, I believe it is extremely complex to Value gold beyond the marginal cost + ROI, but just like when developing an intrinsic value assessment for a stock an investor must simply build a range and then buy when they believe there is sufficient margin of safety.

 

With our models, we view gold as a major buy as it gets closer to 1,000-1,200 and gold equities as the preferred route for exposure when gold is above 1,200. We don't see a plausible environment short of 6% federal funds rate where gold maintains no investment demand premium, and we follow the actual miners and supply of mines and know that its getting more and more difficult to mine the stuff. I highly recommend both Barrick and Goldcorp's conference call transcripts as well as their Q1 presentations for more colour on this. Note the average grades being mined and the capital costs, there is nothing that can change those inputs, not even $30 oil, its simply the dynamics of mining something which occurs at .0011 ppm in the earths crust.

 

For those that thing gold is more abundant in space keep dreaming...

[Parsad]

Forbes thinks Einhorn was making fun of Buffett.  I'm no fan of Einhorn's, but I didn't think he was doing quite that.  It seemed like he was applying the same analogy for cash to gold, and saying that they were similar, except gold holds its value far better.  If he was taking a shot at Buffett, it would be a pretty stupid thing to do.  Cheers!

 

http://www.forbes.com/sites/ycharts/2012/05/31/einhorn-trashes-buffett-cash-but-loves-gold/?partner=yahootix

[moore_capital54]

Forbes thinks Einhorn was making fun of Buffett.  I'm no fan of Einhorn's, but I didn't think he was doing quite that.  It seemed like he was applying the same analogy for cash to gold, and saying that they were similar, except gold holds its value far better.  If he was taking a shot at Buffett, it would be a pretty stupid thing to do.  Cheers!

 

http://www.forbes.com/sites/ycharts/2012/05/31/einhorn-trashes-buffett-cash-but-loves-gold/?partner=yahootix

 

He was totally making fun of buffett! come on! We know for a fact he was as well... Its obvious he was because Buffett refuses even when put on the spot to attribute any historical value to gold. When he bashes gold it is with a clear american agenda as he knows very well any bullish attitude toward gold would cause a mass exodus out of US Currency... In the transcript posted above Buffett was asked in a very straight forward way if he preferred gold over cash and he couldn't even answer, he had to change the subject and talk about farms. This is a topic that Buffett continues to distort while the cold hard facts prove that both he and his father understand the flaws in fiat money and the benefits to a hard currency.

 

I have yet to hear one person ask Buffett if he thought the gold standard was bettter for america than the current fiat money standard, I would love to see him change the subject on that one. We have had this debate on this board before I and I don't wish to participate in it again.. I am going to stop posting about this now.

[beerbaron]

Forbes thinks Einhorn was making fun of Buffett.  I'm no fan of Einhorn's, but I didn't think he was doing quite that.  It seemed like he was applying the same analogy for cash to gold, and saying that they were similar, except gold holds its value far better.  If he was taking a shot at Buffett, it would be a pretty stupid thing to do.  Cheers!

 

http://www.forbes.com/sites/ycharts/2012/05/31/einhorn-trashes-buffett-cash-but-loves-gold/?partner=yahootix

 

He was totally making fun of buffett! come on! We know for a fact he was as well... Its obvious he was because Buffett refuses even when put on the spot to attribute any historical value to gold. When he bashes gold it is with a clear american agenda as he knows very well any bullish attitude toward gold would cause a mass exodus out of US Currency... In the transcript posted above Buffett was asked in a very straight forward way if he preferred gold over cash and he couldn't even answer, he had to change the subject and talk about farms. This is a topic that Buffett continues to distort while the cold hard facts prove that both he and his father understand the flaws in fiat money and the benefits to a hard currency.

 

I have yet to hear one person ask Buffett if he thought the gold standard was bettter for america than the current fiat money standard, I would love to see him change the subject on that one. We have had this debate on this board before I and I don't wish to participate in it again.. I am going to stop posting about this now.

 

If I remember correctly Buffet was publicly bearish the USD dollar for 2001 and above. He even bough basket of currencies and then moved to brazilian Real. So no he is not always cheering for the US.

 

BeerBaron

[Liberty]

Trying to turn Buffet's position into some pseudo-conspiracy feels desperate and disingenuous to me. Can't gold bugs accept that he simply disagrees with them and doesn't feel strongly in favor of the gold standard - probably because it has its own set of problems  - and leave it at that?

[ERICOPOLY]

A black swan for the gold bugs  ;)

 

http://aceflashman.wordpress.com/2009/10/27/solid-gold-asteroid-head-for-earth-world-economy-in-peril/

 

Complete nonsense.. only people with no understanding of geology or mining would even consider asteroid mining anymore than a pipe dream...

 

Nonsense????

 

Oh, and I suppose you have your doubts for their other articles too???

 

Seems like legit reporting to me:

http://aceflashman.wordpress.com/category/people/

 

 

[lessthaniv]

A black swan for the gold bugs  ;)

 

http://aceflashman.wordpress.com/2009/10/27/solid-gold-asteroid-head-for-earth-world-economy-in-peril/

 

Complete nonsense.. only people with no understanding of geology or mining would even consider asteroid mining anymore than a pipe dream...

 

Nonsense????

 

Oh, and I suppose you have your doubts for their other articles too???

 

Seems like legit reporting to me:

http://aceflashman.wordpress.com/category/people/

 

apparently "aceflashman" wasn't enough  ;)

[Mephistopheles]

 

He was totally making fun of buffett! come on! We know for a fact he was as well... Its obvious he was because Buffett refuses even when put on the spot to attribute any historical value to gold. When he bashes gold it is with a clear american agenda as he knows very well any bullish attitude toward gold would cause a mass exodus out of US Currency... In the transcript posted above Buffett was asked in a very straight forward way if he preferred gold over cash and he couldn't even answer, he had to change the subject and talk about farms. This is a topic that Buffett continues to distort while the cold hard facts prove that both he and his father understand the flaws in fiat money and the benefits to a hard currency.

 

Did you read the annual letter this year? He admitted in plain English that gold will probably increase in value going forward, whereas he always says the exact opposite about the USD. If he's trying to protect the USD from a mass exodus, he's doing a terrible job at it.