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Gold’s long-term gains have even outperformed Warren Buffett…

October 8, 2019

Gold’s long-term gains have even outperformed Warren Buffett…

Warren Buffett, despite his extraordinary investment success, has a rather famous and long-standing love/hate relationship with precious metals.

Maybe it started with his dad– Congressman Howard Buffett of Nebraska– who, as a staunch advocate for the gold standard, argued to his colleagues on Capitol Hill that “paper money systems have always wound up with collapse and economic chaos.”

Warren himself acquired a record-setting 128 million ounces of silver back in the late 1990s… which he later sold at a profit in the early 2000s.

But to listen to him talk about precious metals these days, he’s always negative.

Buffett often quips that if you took the world’s entire supply of gold and melted it together, it would form a cube of about 68 feet (~21 meters) per side and be worth around $9 trillion.

With that same $9 trillion, you could buy every share of Apple, Disney, Google, Microsoft, JP Morgan, Exxon Mobil, all the farmland in the United States, all the developable land in Manhattan, and still have more than a trillion dollars left over.

This is Buffett’s central argument: gold doesn’t produce anything. So it’s much better to invest in a productive asset like a business, farmland, etc.

Sure, I’d rather own a profitable, productive asset than a pile of metal.

But Buffett is completely wrong to compare gold to productive assets… they’re apples and oranges.

Gold isn’t an ‘investment’. It’s an insurance policy against paper currencies will lose value over time. So a MUCH better comparison for gold is CASH.

Using Buffett’s same thought experiment, would an investor with $9 trillion rather have all that money sitting in a bank earning 0%? Or buy all the productive assets I mentioned above?

Clearly it’s more attractive to own productive assets than cash sitting in a bank.

…click on the above link to read the rest of the article…

Warren Buffett Explains Bubbles: But He Doesn’t Know We Are In One

September 13, 2018

Warren Buffett Explains Bubbles: But He Doesn’t Know We Are In One

Buffet explains bubbles: “People see neighbors ‘dumber than they are’ getting rich.”

Warren Buffett explains Why Bubbles Happen

Buffett was asked by CNBC’s Andrew Ross Sorkin if he is worried another crisis will happen again.

“Well there will be one sometime,” Buffett said in an interview for CNBC’s “Crisis on Wall Street: The Week That Shook the World” documentary. The documentary airs Wednesday night at 10 p.m. ET/PT.

“People start being interested in something because it’s going up, not because they understand it or anything else. But the guy next door, who they know is dumber than they are, is getting rich and they aren’t,” he said. “And their spouse is saying can’t you figure it out, too? It is so contagious. So that’s a permanent part of the system.”

That last paragraph perfectly explains Bitcoin. Most of those investing in cryptos have little idea how they work, or what they are even buying.

Buffet made no mention of the corporate bond bubble, the equities bubble, or even the crypto bubble. He does not see any bubbles now, at least that he mentioned.

Symptom or Cause?

Buffett confuses a symptom (rampant speculation) with the true cause

The Fed (central banks in general), keep interest rates too low, too long
Fractional reserve lending
Moral hazards like bank bailouts
Poor fiscal policies and massive government debt

In short, there is no free market in anything and thus no valid price discovery. There would always be speculation, but Fed policies and fractional reserve lending are the root cause of bubbles.

Gold Should be Viewed as Money — Not as an Investment Instrument

May 20, 2018

Gold Should be Viewed as Money — Not as an Investment Instrument

On May 4 and 5, 2018, Warren E. Buffett (born 1930) and Charles T. Munger (born 1924), both already legends during their lifetime, held the annual shareholders’ meeting of Berkshire Hathaway Inc. Approximately 42,000 visitors gathered in Omaha, Nebraska, to attend the star investors’ Q&A session.

Peoples’ enthusiasm is understandable: From 1965 to 2017, Buffett’s Berkshire share achieved an annual average return of 20.9 percent (after tax), while the S&P 500 returned only 9.9 percent (before taxes). Had you invested in Berkshire in 1965, today you would be pleased to see a total return of 2,404,784 percent: an investment of USD 1,000 turned into more than USD 24 million (USD 24,048,480, to be exact).

In his introductory words, Buffett pointed out how important the long-term view is to achieving investment success. For example, had you invested USD 10,000 in 1942 (the year Buffett bought his first share) in a broad basket of US equities and had patiently stood by that decision, you would now own stocks with a market value of USD 51 million.

With this example, Buffett also reminded the audience that investments in productive assets such as stocks can considerably gain in value over time; because in a market economy, companies typically generate a positive return on the capital employed. The profits go to the shareholders either as dividends or are reinvested by the company, in which case the shareholder benefits from the compound interest effect.

Buffett compared the investment performance of corporate stocks (productive assets) with that of gold (representing unproductive assets). USD 10,000 invested in gold in 1942 would have appreciated to a mere USD 400,000, Buffett said – considerably less than a stock investment. What do you make of this comparison?

…click on the above link to read the rest of the article…

A Quarter Century Of Monetary Voodoo

April 4, 2016

A Quarter Century Of Monetary Voodoo

A Witless Tool of the Deep State?

Finance or politics? We don’t know which is jollier. The Republican presidential primary and Fed monetary policies seem to compete for headlines. Which can be most absurd? Which can be most outrageous? Which can get more page views?

Politics, led by Donald J. Trump, was clearly in the lead… until Wednesday. Then, the money world, with Janet L. Yellen wearing the yellow jersey, spurted ahead in the Hilarity Run.

“Cautious Yellen drives global stocks near 2016 peak,” reported a Reuters headline. The story itself was a remarkable tribute to the whole jackass money system.

At first glance, “cautious Yellen” would seem incongruous with stocks rising to “near 2016 peak.” Caution normally means playing it cool, not encouraging speculation.

But it wasn’t so much what Ms. Yellen said that sent stocks racing ahead. It was what she hasn’t done. And she hasn’t done exactly what we thought she wouldn’t do. That is, so far this year, she has not taken a single step in the direction of a “normal” monetary policy; our guess is that she never will.

Why not? Is it because she is a witless tool of Deep State cronies? Is it because her economic theory is silly, superficial, and simpleminded? Or is it because she and her predecessor, Ben Bernanke, have done so much damage to the normal world that there is nothing to go back to?

A coo-coo for the stock market…

“Cautious Yellen drives global stocks near 2016 peak,” reported a Reuters headline. The story itself was a remarkable tribute to the whole jackass money system.

At first glance, “cautious Yellen” would seem incongruous with stocks rising to “near 2016 peak.” Caution normally means playing it cool, not encouraging speculation.

…click on the above link to read the rest of the article…

Worst Case Scenario = 73% Down From Here

March 31, 2016

WORST CASE SCENARIO = 73% DOWN FROM HERE

As the stock market gyrates higher and lower in a fairly narrow range, the spokesmodels and talking heads on CNBC breathlessly regurgitate the standard bullish mantra designed to keep the muppets in the market. They are employees of a massive corporation whose bottom line and stock price depend upon advertising revenues reaped from Wall Street and K Street. They aren’t journalists. They are propagandists disguised as journalists. Their job is to keep you confused, misinformed, and ignorant of the true facts.

Based on the never ending happy talk and buy now gibberish spouted by the pundit lackeys, you would think we are experiencing a bull market of epic proportions and anyone who hasn’t been in the market has missed out on tremendous gains. There’s one little problem with that bit of propaganda. It’s completely false. The Fed turned off the QE spigot at the end of October 2014 and the market has gone nowhere ever since.

QE1 began in September 2008, taking the Fed balance sheet from $900 billion to $2.3 trillion by June 2010. This helped halt the stock market crash and drove the S&P 500 up by 50% from its March 2009 lows. QE2 was implemented in November 2010 and increased the Fed balance sheet to $2.9 trillion by the end of 2011. This resulted in an unacceptable 10% increase in the S&P 500, so the Fed cranked up their printing presses to hyper-speed and launched the mother of all quantitative easings, with QE3 pushing their balance sheet to $4.5 trillion by October 2014, when they ceased their “Save a Wall Street Banker” campaign.

As Main Street dies, Wall Street has been paved in gold. The S&P 500 soared to all-time highs, with 40% gains from the September 2012 QE3 launch until its cessation in October 2014. Like a heroine addict, Wall Street has experienced withdrawal symptoms ever since, and begs for more monetary easing injections.

…click on the above link to read the rest of the article…

Greenspan Explains The Fed’s Miserable Track Record: “We Didn’t Forecast Better Because We Can’t”

March 12, 2016

Greenspan Explains The Fed’s Miserable Track Record: “We Didn’t Forecast Better Because We Can’t”

On March 11, the National Archives announced its first opening of Financial Crisis Inquiry Commission (FCIC) records, along with a detailed 1,400-page online finding aid (yes, just the index is 1,400 pages). The records which are available via DropBox, seek to identify the causes of the 2008 financial crisis.

Among the numerous materials are interviews with key players in Washington and on Wall Street, from Warren Buffett to Alan Greenspan. The documents also include minutes of commission meetings and internal deliberations concerning the causes of the financial crisis.

While we admit we have yet to read the several hundred thousand pages released yesterday, here is what has so far emerged as of the better punchlines within the data dump, and it comes courtesy of the man who many believe is responsible not only for the second global great depression (which needs trillions in central bank liquidity to be swept under the rug every day), but for the “bubble-bust-bigger bubble” cycle that was unleashed with Greenspan’s Great Moderation.

Here is Allan Greenspan meeting with Dixie Noonan et al on March 31, 2010:

This is a reason why the Board is getting an unfair rap on this stuff. We didn’t forecast better than anyone else; we regulated banks that got in trouble like anyone else. Could we have done better? Yes, if we could forecast better. But we can’t. This is why I’m very uncomfortable with the idea of a systemic regulator, because they can’t forecast better.

This comes from the person in charge of the most powerful central bank in the world; a world which now is reliant exclusively on central bankers for its day to day pretend existence.

Good luck to all.

China Goes Full “Minority Report”, Creates “Pre-Crime” Program

March 7, 2016

China Goes Full “Minority Report”, Creates “Pre-Crime” Program

By now, the world is largely familiar with Chinese President Xi Jinping’s fabled “Tigers and Flies” campaign.

Since taking office in 2013, Xi has embarked on an ambitious effort to root out party corruption and ensure that the directives passed down from on high in the Politburo are executed faithfully among the sprawling rank and file. As The Atlantic wrote last year, the discipline “problem” is “made more urgent by a slowing economy,” an economy which desperately needs to be reformed.

“Reform, however, requires the ability to enact policy,” The Atlantic flatly adds. “That in turn necessitates bureaucrats who follow the central government’s orders.”

Publicly there have been more than 1,500 announced cases against party officials. But that’s just “publicly.” Knowing the Party’s reputation for “disappearing” those who “disappoint” or otherwise act in morally objectionable ways, the real number is impossible to know but is likely orders of magnitude higher.

When China’s stock market began to crash last summer as the country’s margin “miracle” finally buckled under the weight of the millions of illiterate daytrading housewives who poured their life savings into everything from umbrella manufacturers to industrial companies-turned P2P outfits, Beijing extended the corruption probe to those “responsible” for the equity meltdown.

Soon, the quest for stock market “manipulators” and those (like journalists) who would otherwise seek to harm the national interest by, well, by reporting the facts became part and parcel of a kind of mini Tigers and Flies campaign focused specifically on China’s financial markets. That campaign eventually ensnared quite a few officials, prominent money managers, and eminent businessmen, including Guo Guangchang, a self-styled “Chinese Warren Buffett.”

…click on the above link to read the rest of the article…

Warren Buffett’s Quieter Quest to Kill Solar in the West

February 22, 2016

Warren Buffett’s Quieter Quest to Kill Solar in the West

Not a month goes by without a story of some assault on solar-friendly policies by utilities, or by the Utility Commissions that are often in their pocket.

During the holidays at the end of 2015, it was Nevada’s utter dismembering of its net metering policy. Nevada is—or was—one of 42 states that offered net metering, a program through which customers with solar arrays are compensated for the energy they produce on their rooftops or in small installations connected to the electric grid.

NV Energy Inc. unleashed this full frontal attack on the program that—in one quick vote of three unelected commissioners—pulled the rug out from under 17,000 solar customers and eviscerated at least 8,000 solar jobs. And the Public Utilities Commission of Nevada (PUCN) was happy to oblige.

Nevada has the highest number of solar jobs per capita in the United States, but for how long?

As Nevada’s PUCN invited this “solar black hole” over one of the nation’s sunniest states, many pointed out how NV Energy fought tooth and nail against the successful net metering plan, and ultimately secured its demise.

NV Energy, the state’s largest utility, is a subsidiary of Warren Buffett’s Berkshire Hathaway Energy. This net metering battle was high profile.

Many have pitched it as a Buffett versus Musk showdown, as NV Energy’s demands would prove to cripple Solar City’s business in the state, which was dependent on a consistent net metering program.

…click on the above link to read the rest of the article…

Canadian Pacific Warns Of “Tremendous Pressure”, “Strong Headwinds” For Economy

January 21, 2016

Canadian Pacific Warns Of “Tremendous Pressure”, “Strong Headwinds” For Economy

One week ago, when we explained why “Things Just Went From Bad To Worse For U.S. Railroads,” we said that “the rail industry is about to be slammed with a dramatic repricing, one which is only the start and the longer oil prices remain at these depressed levels, the lower the rents will drop (think Baltic Dry but on land), until soon most rails will lose money on every trip and will follow the shale companies into a race to the bottom, where “they make up for its with volume.”

Today, none other than railroad titan Canadian Pacific (whose stock is down 4% despite the torrid surge higher in risk assets) confirmed that not only are things “worse”, but the bottom may have fallen out from what until recently was one of Warren Buffett’s favorite industries, after missing on both the top and bottom line, but especially during its conference call in which CEO Hunter Harrison admitted that he see “tremendous pressure” on the top line, and expects “challenging times” for revenue growth.

Then COO Keith Creel said that he expected volume in 2016 to be notably down from 2015, warns of strong headwinds for the US economy in the first half of 2016 and says CP is storing at least 600 locomotives in anticipation of better times.

Then the CFO also warned that compensation and benefit costs would be lower in the coming year.

Finally, the CEO warned that in addition to the already cut 7,000 jobs another 1,000 workers are about to “potentially” get pink slips.

Finally, and most ominously, CP warned that it sees delay in the Norfolk Southern deal timeline, and may change its strategy regarding the Norfolk Southern transaction.

We conclude with the warning issued by Bank of America one week ago:

…click on the above link to read the rest of the article…

Exclusive: Dallas Fed Quietly Suspends Energy Mark-To-Market On Default Contagion Fears

January 16, 2016

Exclusive: Dallas Fed Quietly Suspends Energy Mark-To-Market On Default Contagion Fears

Earlier this week, before first JPM and then Wells Fargo revealed that not all is well when it comes to bank energy loan exposure, a small Tulsa-based lender, BOK Financial, said that its fourth-quarter earnings would miss analysts’ expectations because its loan-loss provisions would be higher than expected as a result of a single unidentified energy-industry borrower. This is what the bank said:

“A single borrower reported steeper than expected production declines and higher lease operating expenses, leading to an impairment on the loan. In addition, as we noted at the start of the commodities downturn in late 2014, we expected credit migration in the energy portfolio throughout the cycle and an increased risk of loss if commodity prices did not recover to a normalized level within one year. As we are now into the second year of the downturn, during the fourth quarter we continued to see credit grade migration and increased impairment in our energy portfolio. The combination of factors necessitated a higher level of provision expense.”

Another bank, this time the far larger Regions Financial, said its fourth-quarter charge-offs jumped $18 million from the prior quarter to $78 million, largely because of problems with a single unspecified energy borrower. More than one-quarter of Regions’ energy loans were classified as “criticized” at the end of the fourth quarter.

It didn’t stop there and and as the WSJ added, “It’s starting to spread” according to William Demchak, chief executive of PNC Financial Services Group Inc. on a conference call after the bank’s earnings were announced. Credit issues from low energy prices are affecting “anybody who was in the game as the oil boom started,” he said. PNC said charge-offs rose in the fourth quarter from the prior quarter but didn’t specify whether that was due to issues in its relatively small $2.6 billion oil-and-gas portfolio.

…click on the above link to read the rest of the article…

History Repeats

January 8, 2016

HISTORY REPEATS

“The proper behaviour all through the holiday season is to be drunk. This drunkenness culminates on New Year’s Eve, when you get so drunk you kiss the person you’re married to.”

– P.J. O’Rourke.

On May 29th 1969, Warren Buffett wrote to his partners at the Buffett Partnership, informing them of his intention to retire, and wind up the business. The letter expressed his concerns with admirable candour:

“Quite frankly, in spite of any factors set forth on the earlier pages, I would continue to operate the Partnership in 1970, or even 1971, if I had some really first class ideas. Not because I want to, but simply because I would so much rather end with a good year than a poor one. However, I just don’t see anything available that gives any reasonable hope of delivering such a good year and I have no desire to grope around, hoping to “get lucky” with other people’s money. I am not attuned to this market environment, and I don’t want to spoil a decent record by trying to play a game I don’t understand just so I can go out a hero.”

Money managers are not necessarily known for their integrity, and as the fund management profession has become more and more institutionalized, it is unlikely that many practitioners today would have the moral courage to pen similar words to their investors, even if they shared Buffett’s sentiments.

Times may change, but human nature doesn’t. Here is an excerpt from a Financial Times piece published on December 29th 2015:

“Investment guru Warren Buffett is headed for his worst year relative to the rest of the US stock market since 2009, with shares in his conglomerate Berkshire Hathaway down 11 per cent with two more trading days to go.

…click on the above link to read the rest of the article…

“The Cost Is Very High”: Portugal Taxpayers Face €3 Billion Loss After Second Bank Bailout In 2 Years

December 21, 2015

“The Cost Is Very High”: Portugal Taxpayers Face €3 Billion Loss After Second Bank Bailout In 2 Years

Back in August of 2014, Portugal had an idea.

Lisbon would use some €5 billion from the country’s Resolution Fund to shore up (read: bailout) Portugal’s second largest bank by assets, Banco Espirito Santo. The idea, basically, was to sell off Novo Banco SA (the “good bank” that was spun out of BES) in relatively short order and use the proceeds to pay back the Resolution Fun. That way, the cost to taxpayers would be zero.

You didn’t have to be a financial wizard or a fortune teller to predict what was likely to happen next.

Unsurprisingly, the auction process didn’t go so well. As we recounted in September, there were any number of reasons why Portugal had trouble selling Novo, not the least of which was that two potential bidders – Anbang Insurance Group and Fosun International which, you’re reminded, is run by the recently “disappeared” Chinese Warren Buffett – suddenly became far more risk-averse in the wake of the financial market turmoil in China. Talks with US PE (Apollo specifically) also went south, presumably because no one knows if this “good” bank will actually turn out to need more capital going forward given that NPLs sit at something like 20% while the H1 loss totaled €250 million thanks to higher provisioning for said NPLs. Now, the auction process has been mothballed and will restart in January.

This matters because if the bank can’t be sold, the cost of the bailout ends up being tacked onto Lisbon’s budget. The impact is substantial. In September, when the effort to sell Novo collapsed, the government restated its 2014 deficit which, after accounting for the bailout, ballooned to 7.2% of GDP from 4.5%.

…click on the above link to read the rest of the article…

Warren Buffett: Derivatives Are Still Weapons Of Mass Destruction And ‘Are Likely To Cause Big Trouble’

June 23, 2015

Warren Buffett: Derivatives Are Still Weapons Of Mass Destruction And ‘Are Likely To Cause Big Trouble’

After all these years, the most famous investor in the world still believes that derivatives are financial weapons of mass destruction. And you know what? He is exactly right. The next great global financial collapse that so many are warning about is nearly upon us, and when it arrives derivatives are going to play a starring role. When many people hear the word “derivatives”, they tend to tune out because it is a word that sounds very complicated. And without a doubt, derivatives can be enormously complex. But what I try to do is to take complex subjects and break them down into simple terms. At their core, derivatives represent nothing more than a legalized form of gambling. A derivative is essentially a bet that something either will or will not happen in the future. Ultimately, someone will win money and someone will lose money. There are hundreds of trillions of dollars worth of these bets floating around out there, and one of these days this gigantic time bomb is going to go off and absolutely cripple the entire global financial system.

Back in 2002, legendary investor Warren Buffett shared the following thoughts about derivatives with shareholders of Berkshire Hathaway…

The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear. Central banks and governments have so
far found no effective way to control, or even monitor, the risks posed by these contracts. In my view, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.

…click on the above link to read the rest of the article…

Experts Are Warning That The 76 Trillion Dollar Global Bond Bubble Is About To Explode

May 5, 2015

Experts Are Warning That The 76 Trillion Dollar Global Bond Bubble Is About To Explode

Warren Buffett believes “that bonds are very overvalued“, and a recent survey of fund managers found that 80 percent of them are convinced that bonds have become “badly overvalued“. The most famous bond expert on the planet, Bill Gross, recently confessed that he has a sense that the 35 year bull market in bonds is “ending” and he admitted that he is feeling “great unrest”. Nobel Prize–winning economist Robert Shiller has added a new chapter to his bestselling book in which he argues that bond prices are “irrationally high”. The global bond bubble has ballooned to more than 76 trillion dollars, and interest rates have never been lower in modern history. In fact, 25 percent of all government bonds in Europe actually have a negative rate of return at this point. There is literally nowhere for the bond market to go except for the other direction, and when this bull market turns into a bear it will create chaos and financial devastation all over the planet.

In a recent piece entitled “A Sense Of Ending“, bond guru Bill Gross admitted that the 35 year bull market in bonds that has made him and those that have invested with him so wealthy is now coming to an end…

Stanley Druckenmiller, George Soros, Ray Dalio, Jeremy Grantham, among others warn investors that our 35 year investment supercycle may be exhausted. They don’t necessarily counsel heading for the hills, or liquidating assets for cash, but they do speak to low future returns and the increasingly fat tail possibilities of a “bang” at some future date.

…click on the above link to read the rest of the article…

DANGER WILL ROBINSON

March 25, 2015

DANGER WILL ROBINSON

It’s funny how the truth sometimes leaks out from the government. I’m guessing that Mr. Ted Berg will not be working for the Office of Financial Research much longer. This new agency was created by the Dodd Frank Law and is supposed to protect consumers from the evil Wall Street banks. But we all know the evil Wall Street banks wrote the bill, have gutted the major provisions, have captured all the regulatory agencies, own the Federal Reserve, and control all the politicians in Washington D.C. So, when an honest government analyst writes an honest truthful report that unequivocally proves the stock market is grossly overvalued and headed for a crash, the Wall Street banking cabal will surely call the top government apparatchiks to voice their displeasure. Truth is treason in an empire of lies.

The soon to be fired Mr. Berg’s verbiage is subtle, but pretty clear.

Option-implied volatility is quite low today, but markets can change rapidly and unpredictably, a phenomenon described here as “quicksilver markets.” The volatility spikes in late 2014 and early 2015 may foreshadow more turbulent times ahead. Although no one can predict the timing of market shocks, we can identify periods when asset prices appear abnormally high, and we can address the potential implications for financial stability.

Markets can change rapidly and unpredictably. When these changes occur they are sharpest and most damaging when asset valuations are at extreme highs. High valuations have important implications for expected investment returns and, potentially, for financial stability.

However, quicksilver markets can turn from tranquil to turbulent in short order. It is worth noting that in 2006 volatility was low and companies were generating record profit margins, until the business cycle came to an abrupt halt due to events that many people had not anticipated.

…click on the above link to read the rest of the article…

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