Brodsky On Buffet On Gold

Tyler Durden's picture




 

We have repeatedly voiced our views on Buffett's relentless bashing of the only asset that is a guaranteed protection against now exponential currency debasement and central planner, and other PhD economist, stupidity, most recently here. We are happy that other, more politically correct asset managers, have decided to share how they fell, and take the crony capitalist to task. The first (of many we are sure), are Lee Quaintance and Paul Brodsky of QBAMCO who have just penned "Golden Boy" or the much needed "high society" response to the old man from Omaha: "Buffett may be a sage, a wizard, and an oracle when it comes to nominal relative value pricing of financial assets, but it is well worth noting that Buffett’s proclamations are not necessarily worthy of being considered “fact” in matters unrelated to finance, just as the legendary Joe Paterno’s judgment seems to have been sorely lacking when it came to sorting out matters unrelated to a winning football program....We must assume his aggressive gold comments have been meant to force the price of gold lower. (We do not know why he is so interested in doing so though we do have a reasonable theory, for another time). We strongly disagree with Mr. Buffett’s views and we thought it would be best to explore his comments and provide our counter-arguments."

Selected section from QBAMCO letter:

We think it is imprudent to advise legitimate savers to invest in levered financial assets. The extraordinary relative wealth one may have amassed over the last forty years in the financial markets was most likely legitimized by nominal scale that cannot be sustained in real terms. Such beneficiaries of leverage and inflation typically built very little sustainable capital and innovated nothing. The largest beneficiaries of leverage and inflation had a near infinite funding advantage, either near zero-rate short-term fiat currency funding or very low term funding. Insurers like Berkshire could effectively divert wages from their country’s factors of production (by charging insurance premiums) and reinvest those wages by providing financing to businesses that would maintain their pricing power (through strong branding or demand inelasticity). That great funding advantage is now gone and Mr. Buffett does not seem too happy about it.

 

The narrow gap separating wage growth and asset price growth had to widen following the demise of Bretton Woods. Mr. Buffett may have known about this opportunity earlier and better than almost anyone else because his father, (Howard Buffett, US Congressman from Nebraska), was outspoken in aggressively supporting gold and a fixed exchange currency system. It would be counterproductive and beyond our area of study to try to understand what psychological impulse might compel Mr. Buffett to pursue and achieve lifelong financial success in a manner directly contrary to his father’s views on the value of gold and paper currencies. So we can only guess whether his astounding success in consistently positioning a leveraged inflation portfolio has been the result of a sound pre-meditated strategy passed down from his father or has merely been very ironic.

 

Mr. Buffett’s motivations are not important. He is rich and we think he will always be rich in relative terms because most wealth holders will remain committed to financial assets. Nevertheless, we suspect Mr. Buffet is aware that his wealth is about to be greatly devalued in real terms, just as he correctly foresaw the fate of dot-com billionaires who held their outlets for unreserved credit too long (in the form of corporate shares). Further, we think Mr. Buffett must be aware that the procreative assets he touts are currently priced at multiples of their future nominal cash flows and discounted for almost 0% interest rates, ensuring their future purchasing power will be destroyed in an inflationary environment no matter how much revenue growth they produce.

 

We believe true savers across the world not beholden to Western financial assets understand or will soon understand the difference between relative nominal returns and absolute real returns. They do (or will) not care about the views of very successful leveraged money changers. Yes, an inert rock today will be an inert rock tomorrow. But it will be an even scarcer inert rock tomorrow relative to the fiat currency in which it is priced (same for fine art). Levered productive assets will lose their value against both unlevered scarce inert rocks and unlevered inelastic commodities. The only things they will outperform in a period of great monetary inflation are bonds and cash (both also levered).

 

Mr. Buffett is no doubt brilliant but we respectfully disagree with his sense of real value. We find inspiration in the good sense and graciousness of Sir John Templeton who became fabulously wealthy investing in capital building enterprises and always seemed to maintain an objective and flexible investment perspective.

Full letter (pdf)

 

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Mon, 02/27/2012 - 15:52 | 2201384 THECOMINGDEPRESSION
THECOMINGDEPRESSION's picture

Only makes sense, if you turn your shitty cash into GOLD how will you buy my stock?

Mon, 02/27/2012 - 15:55 | 2201393 spiral_eyes
spiral_eyes's picture

History strongly suggests that bear markets tend to to bottom out when gold hits 1:1 with the DJIA.

At current price levels, gold has a long way to climb, or stocks a long way to fall.

With Benny in charge promising to print and print some more, it looks like gold will climb a lot more than stocks will fall (if they fall at all).

My (slightly tongue in cheek) view is that we'll see DJIA:AU both around $36,000. Maybe BRK.A will end up around that price, too. Sorry Warren.

http://azizonomics.com/2012/02/27/gold-is-still-cheap/ 

Mon, 02/27/2012 - 16:05 | 2201427 redpill
redpill's picture

The old crotchface has lost so much credibility he's not even worth spending the time refuting anymore.  He's a crony capitalist has-been who long ago lost his edge as well as his integrity, if he ever had any, by buying favor with the increasingly fascist union of government and big business.  The best thing the old fucker could do for society is shut his crusty mouth and kick off.

Mon, 02/27/2012 - 16:12 | 2201444 RSloane
RSloane's picture

Yup I agree completely.

I couldn't believe that CNBC gave Buffet three full hours this morning. Becky Slow must have been weighing how severe her chastisement, if any, would be if she slobbered his knob on live television.

Mon, 02/27/2012 - 16:18 | 2201463 Pladizow
Pladizow's picture

Buffets bright, but I choose Gold over Wells Fargo!

Mon, 02/27/2012 - 16:23 | 2201471 I think I need ...
I think I need to buy a gun's picture

if it weren't for the bailouts half of berkshire would be in the atlantic ocean of course hes for the bailouts and of course hes the biggest cheerleaders

Mon, 02/27/2012 - 16:59 | 2201570 nope-1004
nope-1004's picture

Charlie Munger called me a jerk.  FU charlie.

Buffet's been everywhere lately.  Tells me Gold has some real legs under it and it scares the shit out of Benocide and Timmay.  I also think that Buffet is hired by the Fed for PR reasons like this morn. in an attempt to keep the common person away from PM's.

 

Mon, 02/27/2012 - 16:49 | 2201566 Forgiven
Forgiven's picture

I'm glad I'm not the only one who notices Becky salivating for the Buffet.

Mon, 02/27/2012 - 17:16 | 2201662 RSloane
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It was embarassing to watch. I shut it off after ten minutes. I learned that ZH posters had the right take on CNBC all along.

Mon, 02/27/2012 - 17:52 | 2201835 Sokhmate
Sokhmate's picture

the question is would buffet buff the muff?

Mon, 02/27/2012 - 16:47 | 2201559 lasvegaspersona
lasvegaspersona's picture

redpillguy

I agree with your thoughts, Buffet has lost ALL integrety ( I won't waste the ink detailing his slimy dealings over the years) but being more civilized than you I'm not going to repeat "The best thing the old fucker could do for society is shut his crusty mouth and kick off." (I did copy and paste it however)

Mon, 02/27/2012 - 16:49 | 2201565 redpill
redpill's picture

lol...well maybe reading this will push you over the edge and you'll type it yourself next time :)

 

http://www.bloomberg.com/news/2012-02-27/buffett-says-banks-victimized-by-evicted-homeowners-who-emerged-as-winners.html

 

BofA-owning Buffet:  Big Banks are victims of evicted homeowners!!!

 

Can't make this shit up

Mon, 02/27/2012 - 16:55 | 2201581 duo
duo's picture

If BRK was any more crony capitalist, we'd have to call them "GE"!

Mon, 02/27/2012 - 18:40 | 2201979 Don Birnam
Don Birnam's picture

-- A crony capitalist with a taste for leggy tele-milfs, who fawningly worship the very ground he walks on.

Tue, 02/28/2012 - 03:41 | 2202986 RafterManFMJ
RafterManFMJ's picture

 

 

I vaguely recall reading about Buffetts apparently semi-retarded offspring; one guy was given some company stock and sold it all to fund his desire to play guitar on the west coast and be in a band...had he kept it, that stock would have been worth some ten billion dollars...

...I thought, you know, I've not been raised by the Orifice of Omaha, but even so, I would have hedged my bets, and maybe only wasted 75% of my stock...and if my dreams of being a guitar player FUCKING BLEW UP IN MY FACE...hey, I'd still be worth 2.5 billion.

Mon, 02/27/2012 - 23:55 | 2202614 Smiddywesson
Smiddywesson's picture

Green for you sir.  However, I have an observation (though not a criticism) for your opinion, which I agree with.

Perhaps we are being a bit too conservative in that $36k target.  History doesn't provide one single example where the dollar went to zero (except the Confederate currency or the continental) and that makes all the difference.  In nominal terms, gold can go to any price in dollars because the dollar is being destroyed.  

Another point to think about is a caution concerning the DOW.  It is no longer a relevant index with which to measure the economy, so any correlations between it an gold are not reliable.

I still loved your comments.

Mon, 02/27/2012 - 15:56 | 2201397 HoofHearted
HoofHearted's picture

Who is going to do the chart of BRK-A in terms of gold? I think we all know how that will turn out.

Mon, 02/27/2012 - 16:01 | 2201414 spiral_eyes
spiral_eyes's picture

This isn't the chart we want, but it's a start:

http://www.jimslater.org.uk/wp-content/uploads/Gold-vs-Berkshire-Hathawa...

In the last ten years, BRK.A priced in gold has been a big loser, I know that for sure. 

Mon, 02/27/2012 - 16:02 | 2201417 JohnKozac
JohnKozac's picture

Look at True Money Supply Expansion in US, UK Japan and EU:

 

http://blogs.forbes.com/michaelpollaro/austrian-money-supply/

 

 

 

 

Mon, 02/27/2012 - 15:54 | 2201389 Sudden Debt
Sudden Debt's picture

The average man lives to be 82 years old before he kicks the bucket....

Mon, 02/27/2012 - 16:03 | 2201421 Biosci
Biosci's picture

Life expectancy in the West is increasing by ~5h every day.

Just imagine how many tops Cramer will be alive to call.  We're all gonna be rich.

Mon, 02/27/2012 - 16:13 | 2201449 Sudden Debt
Sudden Debt's picture

I'll light one up and drink a good one on that!

Mon, 02/27/2012 - 15:56 | 2201398 jcaz
jcaz's picture

Buffett also thinks houses are cheap-  if he could be the Overlord and manage 200,000 rentals/slaves at once......

So benevolent......  Oh wait, maybe he's just trying to pump the market once more before he drops dead....

Gee, ya think?

Mon, 02/27/2012 - 16:24 | 2201478 Al Huxley
Al Huxley's picture

Yeah, pretty sure that's the case - talking his book. I don't see him rushing out to buy heavily into the housing market he thinks is so cheap. But if the average joe did it would probably help Wells Fargo out.

Mon, 02/27/2012 - 15:57 | 2201401 TideFighter
TideFighter's picture

Uncle B's "2 for 1" sale, if the "1" is gold.

Mon, 02/27/2012 - 16:41 | 2201540 Steaming_Wookie_Doo
Steaming_Wookie_Doo's picture

Yeah, 2 pieces of Uncle Warren's shit for 1 piece of gold...

Mon, 02/27/2012 - 15:59 | 2201405 mayhem_korner
mayhem_korner's picture

 

 

Great letter.

Mon, 02/27/2012 - 17:00 | 2201592 i_fly_me
i_fly_me's picture

Misters Broadsky and Quaintance should be required reading, imo.

 

Try their "Apropos of Everything:"

http://www.scribd.com/doc/54166765/52483956-QBAMCO-Apropos-of-Everything-I

http://www.scribd.com/doc/67929206/Apropos-of-Everything-II-III

Mon, 02/27/2012 - 16:01 | 2201407 GeneMarchbanks
GeneMarchbanks's picture

Buffoon might as well just tattoo the Fed logo on his forehead. Complete wave of anything he utters.

Via Bloomberg:

'Warren Buffett disclosed that Berkshire Hathaway Inc. (BRK)’s foreign-government debt holdings are comprised mostly of securities from Germany, the U.K., Canada, Australia and the Netherlands, indicating the portfolio has less at risk from higher yielding European sovereign issuers.'

At least he now acknowledges the petrobuck is stalling. Translation: buy bonds on the periphery of Empire to support reversing the collapse. Great strategy.

Mon, 02/27/2012 - 16:01 | 2201411 sbenard
sbenard's picture

You were far too kind to the Billionaire Buddy of tyranny!

Mon, 02/27/2012 - 16:02 | 2201420 Caviar Emptor
Caviar Emptor's picture

Late in the history of empires prophets and visionaries proliferate. They get their day up on the soap box but it ends soon enough. Uncle Warren has been trying to pass himself off as Aristotle, and now he's trying to be a peace guru, urging people to believe in his cult of paper, aka the paper economy that's hanging by a thread. 

Mon, 02/27/2012 - 16:04 | 2201426 SilverRhino
SilverRhino's picture

Silver Buffetz!!

Mon, 02/27/2012 - 16:08 | 2201434 williambanzai7
williambanzai7's picture

THE ORACLE

Mon, 02/27/2012 - 16:11 | 2201441 azzhatter
azzhatter's picture

Where does Becky sit?

Mon, 02/27/2012 - 16:49 | 2201568 Joe Davola
Joe Davola's picture

Where's the magazine rack?

Mon, 02/27/2012 - 16:22 | 2201469 Pladizow
Pladizow's picture

She's circling the drain beneath!

Mon, 02/27/2012 - 16:14 | 2201455 RSloane
RSloane's picture

Haha! What's in the toilet has value parity with what's coming out of his mouth.

Mon, 02/27/2012 - 16:14 | 2201456 Vincent Vega
Vincent Vega's picture

WB7, I always enjoy your work but Jeez...this picture may leave a mental image scar.

Mon, 02/27/2012 - 17:09 | 2201617 TruthInSunshine
TruthInSunshine's picture

wb7, can you PS Buffett in a bubble bath, talking on the phone with Becky B. Quick, as he buys preferred stock warrants of BofA, maybe with a big oil painting of ObaMao on the wall?

Maybe Becky B. Quick and Joe Kiernan and the whole cnBSc motley crew can fit in Grandpa Warren's bathtub whilst they interview him for the 80th time this year?

Mon, 02/27/2012 - 18:46 | 2201986 Don Birnam
Don Birnam's picture

Mesh A-shirt...very stylish. Kool & the Gang, circa 1980 ? Or was it Parliament Funkadelic ?

So Uncle Warren has been making some untoward comments regarding gold, eh ?

Potty mouth.

Mon, 02/27/2012 - 16:10 | 2201438 azzhatter
azzhatter's picture

Who even listens to the old fraud cocksucker anymore? I would ask him if he gets a discount on depends for his pumping of P&G

Mon, 02/27/2012 - 16:11 | 2201440 TheSilverJournal
TheSilverJournal's picture

The dollar became the world’s reserve currency by promising the central banks of the world that $35 would be forever exchangeable for an ounce of gold. The US proceeded to counterfeit gold by printing more notes redeemable in gold than actually gold existed, and those counterfeit notes gained their value by stealing it from actual gold. Now that the counterfeiting scam is coming to an end and the counterfeit notes are in the process of being revealed as worthless, much of the value stored in the counterfeit notes will flow back into actual gold.

TheSilverJournal.com

Mon, 02/27/2012 - 17:45 | 2201794 Likstane
Likstane's picture

You just said in 3 sentences what most do in 10 paragraphs!  

Mon, 02/27/2012 - 16:16 | 2201459 Eally Ucked
Eally Ucked's picture

Mr. Buffet is one generation ahead of baby boomers. He was positioned vere nicely to benefit from demographic boom when boomers started to look to invest their surplus in something which would make them more money. It's not of his doing that stock market and all financial assets went thru the roof at that time. Meanwhile America got rid of productive assets, boomers started to draw on their savings and the next generations are much smaller, and prospects on saving anything disapeared. So we will see his succesors reapeting his achievments? I don't think so. 

Mon, 02/27/2012 - 16:18 | 2201464 zebrasquid
zebrasquid's picture

Warren Buffoon?  He's still alive?

Mon, 02/27/2012 - 16:27 | 2201487 mick_richfield
mick_richfield's picture

He's clinically alive.

Mon, 02/27/2012 - 16:21 | 2201467 ZIRPThis
ZIRPThis's picture

Buffet is a hypocritical hack of the highest order.  He's only trying to talk down gold to attempt to temporarily shift investors into equities...preferrably Berkshire equities...while trying to push down the price of gold, so that when the collapse comes he'll have the most cash possible to buy the most amount of gold at the lowest price.

Mon, 02/27/2012 - 16:21 | 2201468 TideFighter
TideFighter's picture

He either reads slow on the johnny or is constipated.

Mon, 02/27/2012 - 16:28 | 2201488 Dick Gazinia
Dick Gazinia's picture

He's gonna blow an "O" ring.

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