This page has been archived and commenting is disabled.
Buffett Releases Annual Letter To Shareholders, Will Avoid Derivatives Going Foward, Continues Bashing Gold
While mostly a regurgitation of old, very trite, and quite meandering thoughts, there are some tidbits of information in the latest just released 2011 Berkshire Letter to shareholders such as that Buffett has chosen a successor to the 81 year old increasingly more confused head (unclear who), that Buffett is on the prowl for large acquisitions, that he hopes IBM shares languish for the next five years (frankly we can't wait until Buffett opens a stake in Apple so he can control the two stocks that between them account for about half of the moves in the DJIA and the NASDAPPLE - after all "economies of scale" is all about how Nominal Buffett exudes 'success'), that he once again sees a housing bottom (he adds: "Last year, I told you that “a housing recovery will probably begin within a year or so.” I was dead wrong" - this admission is far more than we will ever hear from James Cramer who has been calling a housing bottom since 2009), and "Housing will come back – you can be sure of that" - sure, just not in your lifetime, and probably not in ours either, but most importantly, is the discovery not that BRK's profit declined by 30% (to $3.08 billion from $4.38 billion) on a smaller gain on derivatives, but that since he actually will have to post collateral on new derivatives, "we will not be initiating any major derivatives positions." The reason: "We shun contracts of any type that could require the instant posting of collateral. The possibility of some sudden and huge posting requirement – arising from an out-of-the-blue event such as a worldwide financial panic or massive terrorist attack – is inconsistent with our primary objectives of redundant liquidity and unquestioned financial strength." So his warning that derivatives are WMDs years ago was only appropriate if there was money to be lost, such as is the case for 99.9999% of other investors? Ah, there goes the good old hypocritical, crony Warren we have all grown to known and love. And finally what would be a recent Buffett missive without the obligatory gold bashing section: after all, how will the Ponzi scheme inflate if people have realized it is a ... well, Ponzi, championed by none other than the person everyone once thought was actually an investing genius. Fast forward to Buffett's 2020 Letter (when Greek debt/GDP is precisely 120.5%) his main message will be: "I told you to run away from gold. I was dead wrong."
On gold bashing:
The second major category of investments involves assets that will never produce anything, but that are purchased in the buyer’s hope that someone else – who also knows that the assets will be forever unproductive – will pay more for them in the future. Tulips, of all things, briefly became a favorite of such buyers in the 17th century.
This type of investment requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further. Owners are not inspired by what the asset itself can produce – it will remain lifeless forever – but rather by the belief that others will desire it even more avidly in the future.
The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.
What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis.
As “bandwagon” investors join any party, they create their own truth – for a while. Over the past 15 years, both Internet stocks and houses have demonstrated the extraordinary excesses that can be created by combining an initially sensible thesis with well-publicized rising prices. In these bubbles, an army of originally skeptical investors succumbed to the “proof” delivered by the market, and the pool of buyers – for a time – expanded sufficiently to keep the bandwagon rolling. But bubbles blown large enough inevitably pop. And then the old proverb is confirmed once again: “What the wise man does in the beginning, the fool does in the end.”
Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A. Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge).
Can you imagine an investor with $9.6 trillion selecting pile A over pile B? Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators – must continually absorb this additional supply to merely maintain an equilibrium at present prices.
A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.
Admittedly, when people a century from now are fearful, it’s likely many will still rush to gold. I’m confident, however, that the $9.6 trillion current valuation of pile A will compound over the century at a rate far inferior to that achieved by pile B.
And so on. For a much more objective discussion on inflation protection, we strongly urge readers to read Jeremy Grantham's quarterly letter released yesterday. That and the previous 3 years of posts on ZH.
Perhaps while he is being Monday Morning quarterbacking on the mistakes of his career, it would also be wise for Buffett to admit that not he, but his farther was spot on on the topic of gold. That and leaving this world with some dignity, instead of being known as a shining crony beacon for a system that is implding more and more every day, and needs $14 trillion in central bank support (and rising exponentially) to prevent an all out implosion.
Full letter (pdf)
»
- 20878 reads
- Printer-friendly version
- Send to friend
- advertisements -
My first post... no longer a ZH Virgin.
Notice how Buffet is wrong on the things that he has no control over and cannot get inside info on: Housing and Gold. Not as easy when you can't manipulate it, is it old man?
Good #1, I like the user name, too -- with no avatar.
He is right about derivatives and Marc Faber agrees with him.
"Buffett's 2020 Letter" - hopefully written from the grave
You wake up one morning and realize these people aren't industrialists, these aren't bankers, these aren't political leaders - these people are all frauds. And so you buy gold because it is what it is and doesn't pretend to be what it isn't.
My morning was November 5, 2008.
Well stated. I don't rememember the exact date, but it was damn close to that one.
There's little reason for Berkshire Hathaway to hold on to large precious metals positions. Gold and silver are safer, less dilutable forms of money. If I owned a share of a company that was holding on to a lot of gold or silver, I'd demand that they sell it and issue either a special dividend or start buying shares back. I don't need Warren Buffet or any other corporate entity to sit on a mountain of cash or PMs. Invest it or distribute it back to shareholders. I can sit on cash just as well as he can.
It's interesting to see if his investment performance is outpacing holding on to hunk of metal in your closet over a long period of time, but I'd apply that standard to a lot of investment managers.
At his age, warren, could be suffering from senility, which I doubt. However, in any case, "pm's" are being accumulated for the estate!
Too Much to lose, not to be
Although Warren's comments always illicit strong responses, I think we all need to pretty much ignore these comments on Gold: he just doesn't get it. First, Warren is unquestionably the most successful investor in the world, and one of the richest men. But notice that he has NO CLUE what to do with money; he knows how to make it but not how to spend it. This confusion is so complete, he counldn't even figure out how to give it away. So he found somone richer than himself to do it for him: Bill Gates.
Warren is a complete and total business nerd. His passion is collecting businesses, which he excels at. But he has no use for preserved wealth, he doesn't spend it on himself or his kids. Any cash laying around he puts into new investments. He is 83, and will NEVER have to struggle to buy food or pay the rent, no matter how old he gets or how bad the economy gets. The point is: he has no use for preserved wealth. That includes paper in a matress, checking accounts and Gold. Since these assets aren't businesses he has no interest in them.
If we have serious inflation or defaltion Warren will get his hat handed to him, but he simply doesn't care: it's just a better opportunity to buy more businesses on the cheap.
I don't know about you, but I have a strong desire to preserve my wealth. I have a strong desire to be as free as Warren to live the way I want. Warren likes running Berkshire Hathaway. I like doing other things, but I don't want to run out of money ... ever. So I collect Gold, not becasue I think I'll make money on it, but that I won't loose as much. When the global economy finally flushes all this excess debt out of the system, then I'll consider being more of an investor.
Warren does have one vice: he loves being onTV. And part of getting on TV, is acting like everybodiy's favorite grandfather, and being a shill for the status quo that has made him so rich. He gets sweetheart deals, and is happy to spout the party line in return. And as we all know on ZH, the party line includes keeping Gold as demonetized (demonized?) as much possible for as long as possible. Warren doesn't mind doing a little Gold bashing because its so far outside his world view. And it probably gets him some free lunches at the White House.
Guess Mr. Misdirection's accumulated enough heavy metal so he can now really take up the rally against gold. Watch out for Buffett - not to be trusted and the home spun act is exactly that - an act. Beneath the grandfatherly exterior lies a ruthless, cunning and very intelligent manipulator (Not all bazillionaires possess all three previous qualities. Most are either ruthless, cunning or intelligent.) Buffett is a master (master of camouflage obviously) and certainly nobody's fool and if you had done exactly the opposite of what Buffett has suggested regarding investments over the years, you'd be ahead, not waaayyy ahead, but in the black. Careful, there's a fire burning beneath that benign exterior and its warmth doesn't include the rest of us.
Maybe he doesn't understand the paradigm shift. Growth ended in 2005, now comes the stagflation. The next few years will show whether he was clever or lucky.
This btw, is luck.
[1] From wikipedia.
maybe he suspects gold to get confiscated - thats why PHYS and PSLV make sense - you can trade the crap out of a 100% secured gold position without taking delivery and since its based in Canada, so you may be able to ditch your positions before the seizures come. its the only way to even think of owning any metals.
In other words, Mr. Wonderful was "in the loop" from day one of the beginning of the worst excesses of the National and World Ponzi.
Simply put, he is and was a connected piece of crap.
Dividends are for retail idiots and CEO's with mature companies that cannot innovate or do anything, except get a fat salary.
Think of it, you buy a stock to get a piece of the company this is the company that you expect to beat everyone else. Meaning that you hope the stock that will increase in price. A dividend does nothing but put the company in a weaker place for these reasons;
1. No big corporates pay tax anymore so there is no benefit to the company (GE paid $0.00 in tax last yr.)
if you are offshore- then there really is zero benefit.
2. Every company should use excess cash to pay down debt. Who knows what the future brings.
3. Innovate with the excess cash- R&D initiatives, make better products or services, don’t get lazy and don’t always look for payoffs in 1Q.Makes for great stories and PR down the road.
4. Buy back the stock- if mgt. is that brain dead then they should at least rein some shares back in for a financing another day.
5. Most obvious, acquire a competitor- make your offering better, or expand your range- utility company example, buy a small hydro project, buy a tech company making something you need, expand geographically.
6. Pay off all your debt, bring your float down- this is a huge signal for a PE company to buy you at a premium and take you private- all the shareholders vest and the company gets saddled with debt and maybe makes it maybe not- and they may provide opps for smaller companies to buy their cast off divisions. So they can later go public and get their PE guys to vest and get the public to buy and experience a lift in share price and then they can go private when they get big and the cycle repeats.
Second point Buffet is an idiot and should retire- he's punch drunk and will continue to lose money. I never bought the whole folksy shtick.
Oracle:
a. A shrine consecrated to the worship and consultation of a prophetic deity, as that of Apollo at Delphi.
b. A person, such as a priestess, through whom a deity is held to respond when consulted.
c. The response given through such a medium, often in the form of an enigmatic statement or allegory.
http://www.thefreedictionary.com/oracle
Indeed, the Oracle of Omaha has lost his way.
Deity
He is averaging 8.71% PA from 2000-2010.
I'm really sick of this crusty old fuck.
I cannot wait until he is worm food. The sooner the better.
"Buy land, they don't make that anymore."
When I look at true wealth I admire a guy like Ted Turner for what he currently owns. Over 2 million acres of land, 50,000+ bison, horses, trees, minerals, water. THAT is true intrinsic value. To me, you can't put a price on that stuff in a world of exploding population with a thirst for resources.
Government still owns it. and they own the mineral rights.
what went wrong?
he certainly isn't a chip off the old block of his old man
Buffet is correct about gold. PM's are the equivalent of inaction -- dead weight loss. The difference between growth and stability is 100% emotion.
Gold will, however, always be a hedge but never a leader.
Can your coins grow enough food to feed a continent? Never.
Good luck with your metals! Most of you are going to get creamed or at most break even. You could make far better use of your coin fortunes by taking a vacation.
sounds like sour grapes to me
Widowmaker,
You would have saved hard drive space if you just would have said, "I'm not long gold"
Stocks, Bonds, Cash and Alternatives...Gold is considered an alternative, among other things i.e. realestate, futures, timber land, etc. Case in point, the only "Free Lunch" is diversification, may as well take the free ham on rye.
What part of 'if you don't like it, don't buy it" do you not get? I've been hearing that bubble bullshit and that 'can't eat it' bullshit since gold at $500, when I started paying attention. So stick with your decade-long negative returns of DOW and S&P, and please stay away from PMs. We know you're smarter than everyone else, so please, feel free to feel superior to everyone else. The rest of the world will do nicely without your bullshit propaganda.
In a pre2008 world, yep - you're right... we're just a bunch of tin-foil hat losers...
Now say $14,300,000,000,000 and climbing... Say $660,000,000,000,000 in unbacked derivatives.... say PIIGS... say erosion of middle class...
This ain't gona ending well...
Buffett has the same problem with Gold as many others do. It is not meant to be productive. It is meant to be a store of value.
For example, an ounce of silver on Obama's day ot inauguration wound have purchased 8.36 gallons of gas.
An ounce of silver today would buy 9.55 gallons of gas.
This despite the price increase in gasoline.
Buffett also tends to forget that Government actions could make all the Exxon Mobils of the country. So to cound the EPA make the croplands worthless.
But they are not going to be able to do that with gold. At least not without using force.
At least not without using force.
Or tax.
I think people have confiscation wrong. They won't confiscate; they'll just tax gold profits at a high rate. More than stocks or property tax (though both of those will rise, too). That's how they'll disuade people from owning real money while still appearing as if they aren't Fascists.
So, if silver was money relative to other assets in your example, it would be even more unstable than the bullshit dollar!
Additionally, your analogy is only valid when gold is appreciating. The same circular group-think was applied with real estate, and then -- look out below!
Then just don't buy gold. Problem solved. Are you such a nice guy that you want to help your neighbors? I don't understand your motive if it's not to get people to buy stocks. Like, if I hated gold so much, I just wouldn't buy it, and I'd move on with life.
1964 dimes still buy the same amount of fuel as well.
But if you want to pick a small time frame where silver and gold fell in purchasing power, then by all means do so.
Just be sure to cmpare it to that paper currency you love so well.
How far will you get today on 10 cents of gas?
Yeah, that's what I thought.
You know he owns a shitload of gold.
Of course he owns gold. You can book so does Bernanke, so does Gates, so did Jobs. This guy's a lying bag of swamp manure who's crawled under the sheets with His Imamship and no telling where his hands are. Chris Christy should have added one more thought to 'write a check and shut up." Write a check, shut up and drop dead, you pompous PofS.
this asshole needs to do mankind a favor and perish already.
his existence has been a scourge on humanity. granted, if it weren't him, it would probably be someone else, but to read the fucking arrogance and pestilence that emits from this foul being disgusts me to no end.
But he drives an old Cadillac; he's an every man.
/sarc
Buffet doesn't tip and Berkshire doesn't pay a dividend. Guy's a shit bag.
Warren = The Oracle of Obama
So, if I read this correctly, ALL of the world's Gold would be valuable enough to repay about 50% of the debt the country will have when Obama leaves office in Jan 2013.
I predict an incresse in tungsten "requirements."
Old hypocritical Buffet.Admit you made your fortune hedging your arse in the the options market. Now that your arse got fat you bash gold,which is in streetman terms a hedge against the E-Con scam you are backing idiot.
Here's Warren's father on Gold. If he was live today, he would be ashamed of his son.
he's from my home state but I disown him
I'm certain that Buffet thinks that PM holders are nothing more than a bunch of nuts and doesn't give us a second thought... The fact is that if gold ever emerges as "the" fiat currency of exchange, he along with most of his ilk are finished. It's the nightmare that they dream about and can't recall when they awake. It's just that terrible.
While I respect Buffet for his contribution to value investing, his thoughts on gold are dead wrong. The USD is nothing more than a "concept" backed by the belief that it represents a store of value that is agreed to by markets (at least that was before the Chair-Satan, also known as Ctrl-P started the presses).
Now replace the last sentence with this one: Gold is nothing more than a "concept" backed by the belief that it represents a sore of value that is agreed to by markets.
Yep. Buffet is just terrified of the paper ponzi collapsing. Which is too bad for him becasue that is exactly what is happening. He is emotionally tied to a worthless dollar. And he stuck all his money in a trust so he probably can't even save himself now. I will leave a trash can lid off for him.
Buffet is most likely getting killed in gold derivatives.
I think Warren Buffett has so much wealth vested in the fiat system he couldn't possibly say anything else, except bash gold..... At least his big mouth still reveals to others that the system is teetering and all is not well....
Words for Warren: Warren, write a big check of your own damn money and STFU already! If you really think the government is such a good investment, why did you already make sure that all your post-mortem money goes to a private foundation and not the government? Your congressman father was a big advocate of gold money because he knew it gave power to the people. Warren, you are a traitor to the human race.
These geezers will croak eventually.
Unless the doctors decide to keep them alive forever using your health insurance premiums. But even that has limits.
LOL Warren, a value investor, missed the hold on his silver and buy on gold, now his only logical choices:
1. Losing face
2. HATERADE!
The reason Buffet "hates" gold is because it's impossible for him to have a competitive buying or selling advantage over even the most average Joe the Plumber. This is unacceptable. Once he admits that gold (or any other commodity) is where money should go, he knows he'll lose Berk investors. This too is also unacceptable.
I think Buffett is an honest man. But he is oblivious to the fact that there are 54 trillion dollars in debt in the US. If the world's gold stock is valued at 50% of total debt, like it did in 1980, then each ounce of gold will be worth about $4,900 at today's level of debt.
But why would you value the WORLD's gold at half the US's debts? You measure the debts of the US government against the amount of gold it purportedly has in Fort Knox. If you measure it that way, $4900 is peanuts. Against UNFUNDED LIABILTIES of 117 Trillion, all the gold in Fort Knox that the US supposedly has is only valued at $400 Billion.
You can't value the gold the entire world has (15 percent of which is in the hands of Indian housewives for example) and use that to pay debts the US government has run. US debts and deficits vs US government gold holdings. Once you see it that way, $1750 gold is a joke.
Buffet doesn't need gold. He gets bailed out whenever he needs it. Corruption and gold don't go together.
I like Buffet's take on gold. I am not a big fan of Buffet (after all GS made a sucker out of him in making him sell put options to collect tiny premium).
Gold is just like anyother form of money. A lot of folks need to believe in its value for it to be useful. So it does not seem any "less fiat" than a greenback.
Sure it has some advantages (production constraints, etc). But there are also obvious disadvantages in being money as well. In the end, any form of currency as an asset is a risky asset. Gold does not look any less ponzi than US$, no?
Even if you have gold backing the paper money, is it guaranteed that debt ponzis will go away? The debt mountain is perhaps a product of bad banking, bad governance and voters not doing their part in democracies. Even if you had gold backed money, if we had similar conditions, we would have ended up in this state. May be the numbers (billions instead of trillions and millions instead of billions) would have been a bit smaller, however, my conjecture is that the %s would have been the same.
"This type of investment requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further"
Or the existing pool of OWNERS can sell less and velocity take off instead. Ever thought of that old fart?
Hilarious. Whole bunch of ZHers calling Buffett a 'moron', an 'idiot' and worse - what a bunch of incompetent, clueless assholes!
As the saying goes, "If you're so smart, why ain't you rich?"
Fucking losers. First off, Uncle Warren admits his mistakes, which is the sign of a big man. A lot of us were wrong on Warren's recent call on his bathtub ephiany of BAC - those $7 options lookin' pretty good right now.
The man has consistently made bucks, big bucks. in the market for over 50 years, and you young punks are calling him 'moron' and idiot and asshole and worse? What a bunch of losers. Grow the fuck up - the guy is smart and consistent and walks his talk - same house, same wife for over 50 years.
I respect the man, if you had something other than shit for brains, you would too. Don't always agree with him, but my experience is that when I have disagreed with him, he has been right more than me, or I'd be a lot richer than I am. So grow up, you might actually learn something from him, but your cup is probably already full...
A good litmus test for an investment is to insult an investment and see what peoples' reaction is. If they get angry and attack you back for insulting an investment, it's probably safe to say that the investment is a bad one
Here is my reply to Buffett's comments:
http://somanyroadsinvesting.blogspot.com/2012/03/desperation-time-how-coincidental.html
Let me know what you think.
Thx