moore_capital54

Mark the figure is 0.6% of Total Financial Assets where historically it was as high as 2-3% for Mining Shares, and gold bullion backed the monetary base.

Eric again I must disagree, Nixon should have let nations exchange their US dollars for gold causing us to lose some of our gold on the base money level which would have in turn caused the broad money to contract, in turn causing loans to be called in and the system would have corrected itself. We would have had a delevering that would bring economic activity back to the norm, and would encourage domestic consumption as well. A Nation with trade deficits is a nation that is losing its wealth over the long-term. You see there are a bunch of things wrong right now, we truly are no longer competitive on a global basis, and have become lazy consumers that do not produce anything. Fiat money helped us to get to this point.

Eric, Again, the way it instils discipline is that for a foreign nation to gain such a large percentage of the the host nations currency it would have to have been either through debt issuance or fair trade, hence the question should not be what happens when a foriegn creditor asks to redeem their cash in gold, but rather why the host nation owes so much to a foriegn nation in the first place. Running up debts and deficits erodes the purchasing power of a nation, there are no free lunches. Parsad, as we are quoting Buffet... Will the real buffet please stand up? http://www.berkshirehathaway.com/news/feb03981.html "Over 30 years ago, Warren Buffett, CEO of Berkshire Hathaway, made his first purchase of silver in anticipation of the metal's demonetization by the U.S. Government. Since that time he has followed silver's fundamentals but no entity he manages has owned it." This is as strong a statement as can be, he is telling you in simple english he purchased precious metals when they were demonitzed. But anyhow, I don't believe in just quoting buffet or following every single thing he says, unless you are in his position in allocating $200-300B in capital. Most of us are not and need to generate superior rates of return to Buffet year in and year out.

Eric one more thing, if you are still following :) as you can see the gold standard instills a discipline that would make it near impossible for a nation to find itself in the situation that the US is in currently. It was borne out of many trial and errors in government and economic theory. Keynes experiment has messed everything up. The silver lining is that everyone on this board is going to do a lot better than the average joe, as we can pretty much identify inefficiencies and allocate capital accordingly, extracting a return that over time should supersede even the rate of currency erosion (I hope!!). The people who are getting screwed are the hard workers that save $10-30K per year and in a CD or Muni Bond, and when they retire have nothing to show for it, those are the people that are getting punished and there are tens of millions of them. We all know them, and have at least one member of our family in that position. They try hard, and do everything right and are constantly in the rat race. This was Keynes wet dream, to have them all chasing the value of their money, to keep the wheel turning, all for the sake of "aggregate demand", who cares about utility, consume consume consume!!

Eric, that is a very good point and here is my response: For a nation to own excess US dollars to be redeemable in gold, they would have needed to earn those dollars via successful trade with the US. So if and when they decide to redeem their US Dollars, that is their prerogative and they have "earned" their share of the nations gold reserves through free market capitalism. When the US would redeem the dollars for gold (foreign nation dollars) that would immediately contract the base money which would in turn contract the broad money, this would correct the excess (if any existed) created through fractional reserve. Loans would be called back until the base money supported the broad money based on normalized economic activity. But this is exactly how the system is SUPPOSED to work. There are no free lunches. Seshnath: I most apologise but I am completely lost on your logic. It appears you are describing the physical process that revolves around a medium of exchange and completely disregarding the purpose or fundamentals of how and why a medium of exchange should work. Paper can be a derivative of gold, and so can electronic figures on a computer. I don't have a problem with fractional reserve banking either, which is how the broad money expands and contracts due to economic activity (booms and busts), I have no problem with the monetary base expanding when under stress either via a combination of a silver/gold ratio or due to annual increases through mine supply, but all that matters is that in the end, the monetary base is backed by gold or silver, so that human beings don't increase it at will to subsidize a lack of fiscal discipline or political ideology. This my friend, is a tax on savers, while rewarding debtors leading to a slowdown of civilization and prosperity.

Howard Buffet- Warren's Father on Gold as Money and the dangers of Fiat Money: http://www.zerohedge.com/article/howard-buffett-said-human-freedom-rests-gold-redeemable-money-called-return-gold-standard

Ericopoly, it would be a ratio of gold to silver. Some good reading on this: http://projects.vassar.edu/1896/currency.html One more thing relating to your note that gold always causes deflation: In a fractional reserve banking system, gold would back the base money but not the broad money which would be created at the commercial bank level, hence the supply of money would still be elastic based on the growth of economy.

Parsad, I stand by my comment that Mr. Buffet said this "tongue in cheek" as did Munger when he said that people who made money on gold are "Jerks" in his address at the University of Michigan. Buffet and Munger have lived through the gold standard and they were all very much against the demonetization of gold and silver. This is all supported by facts and historical press releases from Berkshire Hathaway. What Nixon did in 1971 struck at the heart of sound investors such as Buffet and Munger, and it shaped their investment outlook, understanding far sooner than most of their cohorts what the increase in money supply would mean when deploying capital over long periods of time. To your next comment about gold as "some sort of utility" it too is very inaccurate. Just as you have been impressed and immersed yourself in the teachings of Graham & Dodd, which were derived from the hard lessons of the great depression, you should at the least immerse yourself in some monetary history, it is in my opinion the duty of any longterm investor. Comparing Gold to Water is wrong. Water is a renewable natural resource which is is not rare at all and quite literally evaporates. If you dig into the foundation of capitalism, and commerce, and free markets one clearly understands that the basis for trade must be a monetary unit of exchange that is stable, cannot be manipulated by man, and is fungible. Oil - Is not fungible, and there is way too much in the world per capita to serve as form of monetary exchange, Sure you could peg the issuance of fiat money to the price of oil, but this would be misleading as Oil is not the most important gauge of economic prosperity. Gold is perfect because it is rarer than all industrial commodities and so when priced in gold, the prices of those commodities remains as stable as can be, let alone any fundamental supply and demand issues relevant to each respective commodity. Platinum - Too Rare, not ubiquitous enough, but is still used as a precious metal and has retained its value perfectly. Silver - A lot more abundant than gold, nevertheless it too has outperformed any fiat currency over the last 40 years. Mr. Buffet once purchased 10% of the world's silver supply due to its fundamentals and quoted his nostalgia from the time Silver was demonetized by the US Government. Diamonds - A lot of people think diamonds are rare when in fact they are not, moreover you can create diamonds as they are basically carbon. Finally, Diamonds are not fungible and it is almost an impossible task to rate two diamonds unless you are a professional. For this reason diamonds can never be a ubiquitous medium of exchange. The Electronic Settlement gold argument I too have a hard time understanding the logic there. I suggest you read this piece by passport capital and see if you still feel the same way about Gold. http://www.zerohedge.com/sites/default/files/Passport%20Capital%20Physical.pdf I agree with both your statements about Buffet, as I explained earlier, but you have to do as Mr. Munger says, always gauge someone's statement based on their self interest. At this point in Buffet's career, the last thing he wants to see is a reversion to the gold standard. For several thousand years, human beings tried many different forms of money and in the end always came back to Gold. You cannot trust human beings with the responsibility of issuing, and governing just how much money is "enough", it never works. Gold is not an investment, I would rather own BAC than GOLD. But I wish that my currency was backed by gold. And that is the argument we should all be having, where the pro's and cons could be argued based on points such as what Ericopoly brought up.

Liberty and Rranjan, I agree with you both, there is no doubt that I feel more comfortable picking good businesses and that my belief in my skills has led me to allocate most of my investable assets in that way, but with that said I prefer to have excess cash held in gold as I have done for the past few years in an environment where central banks are deliberately eroding the value of cash. Many funds have incorporate a gold asset class for this same reason.

Ericopoly, To answer your note, I suggest you read a book titled: "Recent Economic Changes" by David A. Wells. I actually found it for you on google books: http://books.google.com/books/about/Recent_economic_changes.html?id=LG2oz49UcykC The dull title of "Recent Economic Changes" does no justice to David A. Wells's fascinating contemporary account of a deflationary miasma that settled over the world's advanced economies in the 1880s. His cheery conclusion: Prices were falling because technology was progressing. What had pushed the price of a bushel of wheat down to 67 cents in 1887 from $1.10 in 1882 was nothing more sinister than the opening up of new regions to cultivation (Australia, the Dakotas) and astounding improvements in agricultural machinery. In the U.S. between 1849 and 1884, population had risen by 141%, wheat production by 410%. Farmers howled about the price drops, but humanity gained. Luckily, there was no Federal Reserve (it came about in 1913) to find in these trends a deflationary crisis that required amelioration by the vast production of new dollar bills. Keep in mind, that even in a gold standard system mine supply is roughly 0.8% a year, which equates to a 0.8% "Inflation" rate. There are also ways to increase the money supply when using a precious metal standard, for example you can incorporate Silver as a medium of exchange.

Two Comments The graph that goes back to the 1400's is completely inaccurate, I have seen those graphs floating around and they are totally wrong due to the fact that the world was on some type of a gold standard up until 1971, making it irrelevant what the price of gold was UNTIL 1971. The only time the price of gold matters is when our medium of exchange derives its value from nothing, and we need to measure its pace of erosion by comparing it to gold. Which brings me to the next point, the infamous Buffet Cube point that Sanjeev brought up. This point too is so inaccurate and was crafted tongue in cheek, by buffet who knows better. In an economy we must use a medium of exchange (currency). Now either you believe that the value of that currency should be centrally controlled and erode over time (Keynes/Johns Law) or you believe that currency should have intrinsic value and retain that value over time. History has proven, unequivocally that centrally controlled fiat currencies always erode in value and never work over time, relating to Johns Law I suggest the book: Popular Delusions and the Madness of Crowds, to learn more about the kind of bs John Law was up to :) Gold is money and is a medium of exchange that has been used for 5,000 years. To try and say that if you add up all the gold in the world it would fit into an 18 meter block and it just sits there is misleading. As the alternative is to take all the fiat money in the world, sure it would probably fit into a few thousand Olympic sized swimming pools but it too wouldn't do anything as it's just paper. If humans had a choice of what they wanted to use, when buying or selling Exxon Mobile, or when selling goods or services, they would naturally choose Gold since it's so scarce. The Value of Exxon Mobile or Walmart have nothing to do with a cube of gold. The cube of gold is the medium of exchange, used to value the world's financial assets, and right now 99.4% of the world is NOT using that cube, the 0.6% that is using that cube are making money not because the cube is worth more, but rather the currencies of the world that are being used in commerce are worth less. For Buffet, it makes perfect sense to try and distort the value of gold, as he is operating within a fiat money world, that he believes down to his bones will forever function this way. He has assembled a portfolio of businesses that are the first to benefit from any increase in the money supply, but he has also demonstrated as a young investor his understanding of the importance of demonetization from precious metals and has several times in his career, made intelligent investments based on that theme. But quite frankly, he has gamed the fiat money system, so why the heck would he badmouth it? In a fiat money system, the equivalent to gold are the businesses that are so rare and have such a strong market position, with durable competitive advantages and strong moats. Buffet has already accumulated most of those businesses. The investors that do not own a collection of 70+ world class businesses or can compound their equity at 20%+ per annum are running an uphill battle as this is really a zero sum game. Over time, the value of fiat money will erode, when measured against the value of goods/services/ and finite commodities.

I don't see how gold can be a bubble when all the gold ever mined represents just 0.6% of Total Financial Assets ($160 Trillion). If gold declines from 1750 to 750, it won't affect anyone here. This is not like the mortgage bubble which affected almost $60 Trillion in financial assets. Morever, gold supply is only 2,500 tonnes per year, while jewelry demand is 2,200 tonnes, Semiconductors is 200 tonnes (every mobile phone requires about $1 worth of gold) and Dentistry is 150 tonnes per annum. So you already have an imbalance of 100 tonnes right there. The rest of demand falls into investment demand which historically was depressed due to central bank sales, the central banks have now decided to turn around and purchase gold, and all the while mine supply is extremely inelastic (in the last 15 years, exploration budgets have gone up 10x while gold discoveries have declined by 90%). We are mining lower grade gold at deeper depths and higher cash costs than ever in the history of mining. I think the only reason some people are worried about the price of gold is that under their economic philosophy it shouldn't be worth anything and they are bothered by it's rise, its kind of like being jealous of the neighbours lawn. Why are people so obsessed with the price of gold? The market cap of all the gold companies combined is less than Apple, this won't affect the economy in any way shape or form if gold miners collapse or gold bullion drops in price. It's just bothers investors who don't understand it and have missed the single best performing asset this decade.

They ALL make money, all they are doing is jumping in front of the bid ask spreads, and on more liquid stocks manipulating the bid ask spread based on a real time weighting of the book. They make very little money per transaction but it adds up. If they don't make money they would not be in business. Its not like investing, they end EACH and EVERY DAY with a profit, which is essentially a toll on the net buy volume of that day, thats all it is.

DCG, they probably have an HFT algo doing the accounting as well :) They do in fact use significant leverage, as high as 50-100 to 1. The key here is that they all go home cash so they manage their exposure intraday. That is why it is impossible for them to lose everything unless the market went down 20-30% in one day, which may happen if we keep going like this. I have never seen the market as volatile as it has been over the last 3 years, some will say that is due to the economic climate but there is a bigger trend here and that is the adoption of HFT now accounting for 70% of ALL Equity trades which is just ridiculous. People like Myron Scholes will find ways to rationalize the existence of HFT's with some industry funded research report, but we all know the truth..

After reading Coopermans points, I am so happy to see him discuss this topic. I have personally had it with HFT having seen first-hand how these guys work. A colleague runs an HFT Fund and they start the day with cash and end the day with cash. There is no way they are helping the market or the average investor when they MUST end each day back at cash. I really hope that lawmakers can realize that HFT is a huge tax on capital markets and makes zero sense. It is one thing to have daytraders like SAC capital extracting spreads all day, but it is another to have robots doing it with insane leverage and speed that cannot be matched. They even place their servers next to the exchange servers to gain an extra nanosecond. This is not the way capital markets are supposed to work, and the long-term investor is getting shafted!

Liberty, Buffett has stated repeatledly that his net worth outside of Berkshire was around $500mm, he so much as wrote a letter to Paulson during the credit crisis spelling out the same. I believe this gain most probably came from securities he purchased in 2008-2009 that he sold in 2010. That letter proposed a deal in which, in the words of the letter, "The company I head, Berkshire Hathaway, would be pleased to invest $500 million" and "I would be willing to personally buy $100 million of stock in this public offering. (This constitutes about 20% of my net worth outside of my Berkshire holdings, which as you know are promised to charity.)"

Personally, I couldn't imagine working without my Bloomberg Terminal. It reminds me of the Gertrude Stein Quote: “I've been rich, and I've been poor. Rich was better.”" To me the largest advantage is the depth of information, being able to go back literally 30 years for News Releases and Filings and also with smaller market capitalization companies, being able to reach sellers swiftly and negotiate off the market blocks. For those that trade Canadian Juniors BAS and BASM are very useful tools as well. Looking back to when I did not have a terminal, I was wasting a lot more time repeating tasks, no doubt about that. My suggestion is that if you manage anymore than $10mm, you can afford a terminal, until then I agree that conserving costs is your number one priority as a manager.Also, the price for Capital IQ seems a bit high, we pay $1800 per month for our Bloomberg and that is for Bloomberg Anywhere which allows remote access. Another thing you should know, most funds with over $100mm in AUM get their bloomberg terminal subsidized from their prime brokers.

Buffet says his Adjusted Gross Income was roughly $62mm in 2010, what a star! Keep in mind this is all derived from his wealth OUTSIDE of Berkshire Hathaway. A few years ago Buffet said that wealth stood at around $500mm, I bet some of this income is coming from his buys in 2008-2009.

In my opinion he did the perfect job, focused on the facts, on the actual core business, and didn't even give too much weight to the recent market activity. Initially I felt he was tepid, but as the interview progressed I realized the logic in his demeanor, hence the thread :) Cheers!

I loved his demeanor, not that of a bank that is collapsing. That of a confident CEO, stating facts and reminding everyone that when we remove the sensationalism of the market, this bank is doing just fine.

Biaggio - I think that is a brilliant idea and also thought about this today as a potential mechanism for QE3. Think about it, when the fed conjures money to buy bonds, the sellers receive cash and go out and buy other bonds. At these ridiculously low interest rate levels, the effect is minimal on the real economy while it helps our government continue to run large fiscal deficits that punish the investor class - the savers. Now as crazy as this sounds, Imagine if Bernanke bought 1 Trillion worth of US Equities, and retired all the shares bought. In that scenario two things would be accomplished: 1) Investors - Savers, who had deployed after tax capital would most likely redeploy that cash into equity markets or other higher risk investment markets where they had allocated those holdings, this money would flow to the investment class. 2) We would all own a larger part of the US Equity markets than before, making companies more attractive on almost every metric all the while their earnings power would most probably grow due to the additional amount of money flowing in the system. I know this may sound nuts, but is it really that much crazier than the FED buying Government bonds? I don't think its that radical and while I am a staunch opponent to Keynesian economic principles, this is at least a creative way of encouraging investment which fuels economic growth.

This argument and thread seem to completely disregard the facts of life as we now know them.. IE: The Fed steps in and supports banks when they come close to insolvency, and will never let any of the banks mentioned find themselves in those situations. To disregards the actions of the fed would be dismissing an important lesson in history.

Rustick, I am naming 3, sorry... 1) CSCO 2) BAC 3) BCS (Barclays)

Think we saw the BAC bottom today. Really!

Berkowitz down 1B+ Today.. per Bloomberg.