Cramer blasting Buffett over Gold (for entertainment value only)

[Liberty]

http://www.fxstreet.com/fundamental/analysis-reports/gold-investments-market-update/2011/07/11/

[Guest Hester]

Thanks for the link.

 

There's so many things wrong with that article I don't even know where to begin. As if showing the fact that gold has outperformed during the last decade is a rebuttle to the statement that gold has no utility.

 

I'd say the only valid argument against Buffett & gold that I can think of wasn't made in that article. That is, Buffett won't invest in gold because it has no utility, yet he has no problem owning in whole Borsheims, which just sells products with no utility. It's human nature to value rare, shiny things, whether it being jewelry or bars of gold.

[nodnub]

Thanks for the link.

 

There's so many things wrong with that article I don't even know where to begin. As if showing the fact that gold has outperformed during the last decade is a rebuttle to the statement that gold has no utility.

 

I'd say the only valid argument against Buffett & gold that I can think of wasn't made in that article. That is, Buffett won't invest in gold because it has no utility, yet he has no problem owning in whole Borsheims, which just sells products with no utility. It's human nature to value rare, shiny things, whether it being jewelry or bars of gold.

 

As you say, buying shiny things is human nature. There is no utility in owning gold but there is plenty of utility in owning Borsheims. It's like having a toll bridge income on expected human behavior.  I don't see any conflict with WEB's logic on gold. 

[moore_capital54]

Gold is Money, that is it's utility. Until 1971 it served as money and over time there is no doubt we will revert to some type of a gold standard system. A fiat money system never works, it has been tried for centuries and always leads to the situation we are in now. Buffet knows this as well having acquired a significant amount of the world's silver supply in 1999 for reasons that had to do with its demonetization (google Buffet Silver). That being said, in a fiat money based world Buffet has chosen the most intelligent way to accumulate wealth and that is by owning good businesses with pricing power and moats.

 

But it is important to remember that the argument is not about whether gold has utility or not, it's about how you measure your wealth over the long-term and if you adjust for the depreciation of currencies. Gold is the only regulator of fiat money and it's sad that a lot of the younger generation investors simply refuse to comprehend that logic. There is no doubt in my mind that Buffet knows this better than most, but at the same time understands that in a fiat money world, it makes zero sense for someone in his position who essentially gamed the fiat money system by acquiring toll roads in almost every segment of the economy to talk about the fallacies of our system. If anything, buffet's fear of inflation should only confirm this thesis. Buffet also assumes that the average 9-5 worker can allocate most of their after tax salary in equities and compound better than inflation but that too is something I disagree with. A factory worker who has put away his after tax salary for 30-40 years in safe CD's and muni bonds has done a lot worst than gold, and all that means is that the money he saved has eroded in value.

 

A fiat money system punishes the savers and rewards the creditors, leading to booms and busts.

 

A good book on this topic: A World in Debt by Freeman Tilden, written after the great depression.

 

ADDED** Before I open a can of worms here and get told that "Buffet bought silver because it has industrial use" I am quoting directly from a Berkshire Hathaway Press Release in 1998:

 

"  Over 30 years ago, Warren Buffett, CEO of Berkshire hathaway, made his first purchase of silver in anticipatin 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."

[oldye]

According to wiki Buffett paid 4.50 an ounce, I remember him saying he paid 3, either way it was probably less than it costs to take out of the ground at the time. 

[moore_capital54]

Guys and Gals, I found the full interview on this here: http://fora.tv/2011/05/05/92Y_Gold_The_Running_of_the_Bulls

 

This is one of the only interviews with Mr. Tom Kaplan I have ever seen. For those that don't know, Kaplan has built a fortune of about $4-5 Billion dollars all in the last 10 years in the natural resources industry. He has mastered the art of buying way out of the money projects that became in the money due to large moves in the commodity price. Take natural gas, in the earlier part of the decade, he acquired leaseholds in Texas and began horizontal drilling/fracking and discovered one of the largest natural gas fields. He sold that field to Encana for $2.4B in cash, at the time of sale he owned 90% of the company. The capital which he used from start to finish with about $50 million of his personal equity and an additional $150-300 million in debt and equity from institutional investors. The $50 million he had came from APEX Silver which was a company he founded in the 1990's and owned the world's largest silver mine (San Cristobal in Bolivia). Since 2004, Kaplan has built his Electrum Group into the world's largest gold investment fund, owning stakes in Novagold/Gabriel, and over 100 deposits worldwide.

 

Another great article on fiat money here: http://www.businessinsider.com/25-reasons-to-buy-gold-and-dump-dollars-2011-7