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Guest Post: About Those High Gasoline Prices… Look Again

Tyler Durden's picture




 

 

Submittedby Simon Black from Sovereign Man

About Those High Gasoline Prices… Look Again

In Warren Buffett’s latest round of gold-bashing last weekend, he described all the gold in the world as a useless cube that would fit snugly within a baseball infield.If you owned such a cube, you would only be able to ‘fondle’ it… but generate no investment return.  The same ‘value’, meanwhile, would allow the owner to purchase all the productive farmland in the United States plus 16 Exxon Mobils, in total yielding over $800 billion annually.Granted, Buffett’s views on gold are perhaps stymied by his poor experience investing in silver some 15-years ago. But still, he fails to see some obvious fallacies in his logic.

Most assets left unmanaged will fail to produce an investment return. The virtuous farmland that Buffett extols in his hypothetical example does not magically spawn corn, nurture it, harvest it, sell it, and deposit the proceeds into its owners’ pockets. Our farmland here in Chile certainly does not.

No, it takes a lot of work, a lot of experienced people, a lot of know-how, and a little bit of luck. All of this has to be managed.

Even the baseball field that Buffett references (when trying to give his investors an idea of the scale of all the gold in the world) is an asset. Simply left sitting there, a baseball field will soon be overtaken by erosion, weeds, and the dilapidation that comes with neglect.

Maintained and well-managed, however, a savvy owner of a baseball field can lease it out to the local little league. Or pull a Kevin Costner and turn it into a tourist attraction. None of this happens without appropriately managing the asset.

Even Exxon Mobil, with all of its royalties and intellectual property, requires tens of thousands of employees to manage the company’s assets, collect the profits, and ensure shareholders get paid.

Likewise, a huge cube of gold left alone in a baseball infield will fail to produce any investment return. When managed, however, gold is like any other asset– it can be leased, traded, loaned out, used as collateral, etc.

More importantly, though, the reason that many gold investors purchase the metal to begin with is because physical gold carries no counterparty risk.

Unlike paper currencies which are issued at will by corrupt central banks, or even Exxon Mobil, whose success depends heavily on the management team’s goodwill and diligence, a one ounce gold coin in your pocket will still be a one ounce gold coin tomorrow. This is the entire premise behind money as a store of value.

As my friend Tim Price told me over drinks in London several months ago, fiat currency is simply an abstraction of the concept of money; paper money conjured out of thin air cannot be real money, it’s merely an idea based on confidence and collusion.

Curiously, only a tiny percentage of worldwide money supply is actually physical paper– most ‘money’ is in digital form, simply entries in a computer… a few bits of code which constitute your net worth. In this way, our currency is actually an abstraction of an abstraction of the concept of money.

To this I would add that the entire financial system is underpinned by a complex network of hypothecated debt and derivative instruments whose notional total exceeds (by many multiples) the entirety of world GDP. In this manner, we are talking about abstractions of abstractions of abstractions.

Gold is real. It exists. And it scarcity dictates that it is a reasonable store of value, particularly in a world of abstract money.

There’s a lot of talk right now, for example, about rising oil prices which have created uncomfortably high gasoline prices. In gold terms, however, gasoline prices are in a deflationary spiral. The chart below shows unleaded gasoline prices in grams of gold since January 1976:

and for the last five years:

Priced in grams of gold, gasoline is near an all-time low. [In fact, there's a great site run by my friend Charles V. that shows this trend with a variety of commodities and retail goods.] Buffett (and others) argue strongly that investors should be in stocks… that a company like Coca Cola or productive farmland is a better long-term investment than a useless hunk of metal.He’s probably right. Except that the useless hunk of metal isn’t really an investment. It’s an anti-currency… appropriate for those who want to sit out of the market and be in cash without having to be in cash.

 

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Thu, 03/01/2012 - 13:30 | 2213166 orca
orca's picture

Perrrrrrrrrfect, eat that Warren!

Thu, 03/01/2012 - 13:44 | 2213241 johnk78
johnk78's picture

Buffet is a financial terrorist!

 

-John
http://www.youtube.com/watch?v=z3VDJDPMOmk

Thu, 03/01/2012 - 13:50 | 2213267 JPM Hater001
JPM Hater001's picture

Time to take a shot.

 

Thu, 03/01/2012 - 13:52 | 2213270 JPM Hater001
JPM Hater001's picture

Sorry, Shot Hit Shot.

Edit: Shot Hit Shot hit Shot...

Thu, 03/01/2012 - 13:55 | 2213291 spiral_eyes
spiral_eyes's picture

While oil prices in gold have remained stable in the last ten years, Berkshire Hathaway's share price has, shall we say, not:

http://azizonomics.com/2012/02/29/warren-buffett-priced-in-gold/ 

Sorry Warren.

Thu, 03/01/2012 - 14:04 | 2213335 Caviar Emptor
Caviar Emptor's picture

Uncle Warren will lead us all down to the shopping mall, strumming his  magical little guitar. And he'll keep on strumming and singing as you empty your wallets with a smile. And when that's done he'll ask you to leave because business is business, you know, and anyway it turns out he owns the mall

Thu, 03/01/2012 - 14:12 | 2213348 hedgeless_horseman
hedgeless_horseman's picture

 

 

Bank of America Corp is planning to introduce a monthly fee for its customers holding checking accounts unless they agree to bank online, buy more products or maintain certain balances, the Wall Street Journal said.

 

http://finance.yahoo.com/news/bank-america-considers-checking-account-062154199.html

 

Essentially-free Fed money, mark-assets-to-unicorns, and barely a reserve requirement, yet they still can't make it! BAC up 2% on this awesome news.

 

Thu, 03/01/2012 - 14:13 | 2213366 Caviar Emptor
Caviar Emptor's picture

Because they're still living in the pre-2008 world, bloated payrolls and headcounts, pretending that they didn't fail and nothing has changed. They're living off American corporate welfare

Thu, 03/01/2012 - 14:27 | 2213449 Common_Cents22
Common_Cents22's picture

It's time for people to pull their money out of the big banks, and put it in regional/community banks, credit unions.   Peer to Peer lending will grow as well.

Thu, 03/01/2012 - 16:51 | 2214357 donsluck
donsluck's picture

Longer term, the death of credit entirely.

Thu, 03/01/2012 - 14:07 | 2213344 JPM Hater001
JPM Hater001's picture

Timeeeeeen     aeo;i  rffffor     annnoiithher hit.

Thu, 03/01/2012 - 14:09 | 2213353 JPM Hater001
JPM Hater001's picture

Shit. bottoms up.

Thu, 03/01/2012 - 14:19 | 2213405 JPM Hater001
JPM Hater001's picture

Light up kids.

I need someone to shut the market down or I wont make it to dinner.

Thu, 03/01/2012 - 14:22 | 2213417 JPM Hater001
JPM Hater001's picture

Im gonna use the Niagra Falls momento shotglass this time...it's a bit smaller.

Thu, 03/01/2012 - 17:31 | 2214622 non_anon
non_anon's picture

cheers!

Thu, 03/01/2012 - 13:59 | 2213310 mayhem_korner
mayhem_korner's picture

 

 

I sh-t you not, but CNBC says that WTI is up today based on Economy Hopes

http://www.cnbc.com/id/46579141

Thu, 03/01/2012 - 14:12 | 2213361 Every Third Word
Every Third Word's picture

The media will soon say:

"Obama has brought back the economy WHY DOESN"T ANYBODY SEE THAT THE ECONOMY IS BACK?!?! WHAT IS THIS HATRED OF THE PRESIDENT?!?!!?

 

CNBC will say:

The EMP Attack on the east coast was bullish for buggy makers!

The Iranianian attack was great news for Johnson and Johnson!

The stock crach is great news for spam makers!

 

Thu, 03/01/2012 - 13:30 | 2213171 SILVERGEDDON
SILVERGEDDON's picture

Hey, Warren - I'll take all that worthless gold off your hands for free - no strings attached. I have a fucking truck load of old stock certificates you can jack off into and wipe your ass with in exchange. Good deal for you, bad deal for me - lets get 'er done, eh ?

Thu, 03/01/2012 - 13:45 | 2213247 oddjob
oddjob's picture

Giving kids diabetes is tough work, but Warren works hard at it.

Thu, 03/01/2012 - 16:27 | 2214134 boatwhiskers
boatwhiskers's picture

Sugar and flour by the trainload, whip it into soda and candy, poison the public, support Obamacare to sleep at night.

Warren your such a nice man.

Thu, 03/01/2012 - 16:53 | 2214372 donsluck
donsluck's picture

It's a difficult (profitable) job. But someone's gotta do it!

Thu, 03/01/2012 - 17:14 | 2214540 njrod
njrod's picture

Warren's hell, or afterlife, is going to be Carl Menger and LvM lecturing him on the orgins and proper theory of money: GOLD/SILVER.

Thu, 03/01/2012 - 13:32 | 2213182 Hugo Chavez
Hugo Chavez's picture

A little bit of anti currency never hurt.

Thu, 03/01/2012 - 13:42 | 2213232 mayhem_korner
mayhem_korner's picture

 

 

Do you have enough anti-currency to get to warp speed, Mr. Scott?

Aye, Cap'n, but she's goyn' da be a rough ride I tell ya.

Thu, 03/01/2012 - 14:28 | 2213447 piceridu
piceridu's picture

It has been written...the coming of the Anti-Currency. The sign will be $6,666

Thu, 03/01/2012 - 13:32 | 2213184 rqb1
rqb1's picture

i thought buffett bought ag ~ $4,  caused a double in spot b/c he wanted the physical.  i always wondered if he has held onto it.

Thu, 03/01/2012 - 13:46 | 2213254 mayhem_korner
mayhem_korner's picture

i always wondered if he has held onto it.

 

...and if he has whether he could locate it.  I can't help but see a lot of Mr. Magoo in Uncle Warren.

Thu, 03/01/2012 - 16:14 | 2214013 The Disappointed
The Disappointed's picture

Maybe Uncle Warren had a boating accident of his own.

Thu, 03/01/2012 - 14:32 | 2213469 Buckaroo Banzai
Buckaroo Banzai's picture

He got rid of it not that long after he bought it. I think he may have been visited by some gentlemen in trench coats and dark glasses who suggested it might be better for all concerned if he didn't hold onto all that physical silver for the long term.

Thu, 03/01/2012 - 13:33 | 2213185 GeneMarchbanks
GeneMarchbanks's picture

'Curiously, only a tiny percentage of worldwide money supply is actually physical paper– most ‘money’ is in digital form, simply entries in a computer… a few bits of code which constitute your net worth. In this way, our currency is actually an abstraction of an abstraction of the concept of money.'

So why do all these jag-offs continue with the physics analogies and epistemological garbage?

Thu, 03/01/2012 - 13:36 | 2213204 Tsar Pointless
Tsar Pointless's picture

Yep.

The prominence of digi-dollars (as I call them) means that nothing ever has to go down in price. Ever. And no entity or person is ever insolvent. Just add a 'zero' or two on the computer screen, and voila! Instant solvency.

If housing prices should only ever go up, why shouldn't the price of everything else?

Thu, 03/01/2012 - 13:54 | 2213286 GeneMarchbanks
GeneMarchbanks's picture

Since we've established that 'money' is a social agreement on the basis of mutual understanding then it should follow that it is by no means real but a world of make believe. So, if that is true, does applying general theory of... let's say classical mechanics make any sense?

Thu, 03/01/2012 - 14:16 | 2213326 Zero Govt
Zero Govt's picture

because a price needs 2 things, a buyer and a seller

Benny has bought toxic garbage (mortgages) off the steaming bankrupts of Wall Street, cash for crap. And pooper-scooper Ben wants to pick more of these turds up soon as Blankfein, Dimon et al want to dump them with the spin he wants to "support the US housing market"

that'll be because Blankfein & Dimon can't find buyers for their shit for if they did 'price discovery' would happen

only trouble is no matter how many zeros Ben pumps into an economy you always need a buyer to pay a price. Price discovery scares the crap out of central bankers, they're not used to market economics which is why Ben has recently self-awarded the Fed the ability to price assets/crap how he sees fit (ie. cook his own books)

You can see the problems the US Govt is getting in the long end of US Treasuries.. there's no buyers for Tiny Tims long dated trash, sorry Treasuries, Benny has to fabricate a market (buyer) from zeros

Thu, 03/01/2012 - 17:58 | 2214756 zerozulu
zerozulu's picture

Is there a way we can make people understand that this is not the price of oil going up but price of dollar going down?

Thu, 03/01/2012 - 19:45 | 2215084 Zero Govt
Zero Govt's picture

Yes... 'price discovery' at the pumps

Thu, 03/01/2012 - 13:33 | 2213186 LawsofPhysics
LawsofPhysics's picture

Preaching to the chior.  I love it when a friend will say "this or that is expensive".  I always ask them, "priced in what", then I get the deer in the headlights.

Thu, 03/01/2012 - 13:33 | 2213190 Tsar Pointless
Tsar Pointless's picture

Good to know. The next time I go fill up my gas tank, I'll take gold as payment for services rendered.

I'll let you know how that goes.

Oh, I think I can in advance - THEY WON'T TAKE THE GOLD AS PAYMENT.

So, basically, this post - much like my moniker - is pointless.

Thu, 03/01/2012 - 13:37 | 2213207 Beam Me Up Scotty
Beam Me Up Scotty's picture

I actually own a gas station.  Come on in, bring your gold.

Thu, 03/01/2012 - 13:45 | 2213255 jiggerjuice
jiggerjuice's picture

I have wondered about this. As far as I understand it, US Silver Eagles or Gold, denominated at $1 and $50, are "actual currency" meaning you are receiving $1 or $50. Therefore, you exchange say $1700 for a single golden coin, and then mark the 1650 as a loss to the business, which is tax deductible? So with silver, you sell 35 bucks worth of gas, take a silver coin, and then mark a 34 dollar loss? Is that correct?

Makes me want to start a small business that accepts only silver/gold coins. IF this is correct. Is it?

Thu, 03/01/2012 - 13:48 | 2213265 johnQpublic
johnQpublic's picture

thats beautiful

i like it....must research

Thu, 03/01/2012 - 14:11 | 2213360 Thomas
Thomas's picture

I think you're probably toast (see suggestion below about the court case). However, you would be closer to an airtight case by using pre-1964 silver coins.

Thu, 03/01/2012 - 13:52 | 2213274 Conrad Murray
Conrad Murray's picture

You may want to look into a man by the name of Robert Kahre of Nevada...and his court case.

Thu, 03/01/2012 - 14:25 | 2213431 Sophist Economicus
Sophist Economicus's picture

Technically, no one can tell you what price to charge for anything.   If you sold $35 dollars worth of gasoline for a $1 silver coin, you could do that.   However, how long could you do that for?    At some point you would need to convert your silver coins to FRNs to purchase more inventory.   You would now take a capital gains hit (youclaimed it was $1 at transaction time and now got more for it), you run the risk of the market going south on you in the short run, etc...

 

I have played with this myself.     You could give your employees a bonus in PMs with legal tender amounts.    You could withhold the legal tender tax values - that would drastically minimize your employee's tax liability.   As long as you didn't declare any 'losses' .vs. the actual cost basis or expect the 'cost basis' to be the business wage value, you would be fine.    You would be giving your employees a 'tax free' bonus and you would bear the tyrue cost of the bonus (no offset wage deduction).

 

Your employess would be taxed at the time of conversion (capital gains tax), if someone reported the sale. 

 

 

Thu, 03/01/2012 - 15:48 | 2213865 NidStyles
NidStyles's picture

Selling Physical PM's does not incur Capital Gain's taxes, as you are exchanging like items.

Thu, 03/01/2012 - 17:01 | 2214419 donsluck
donsluck's picture

Huh? You are incorrect on one count and ambiguous on another. First it IS considered a SHORT term capital gain by the IRS. Second, if you are "selling" for dollars (presumably, as you are unclear on this point) it is fully taxable at your normal income tax rate (and may push you up into a higher bracket for the profits as well).

DO NOT SELL YOUR PMs.

Thu, 03/01/2012 - 13:47 | 2213258 johnQpublic
johnQpublic's picture

a gas station a block from here advertises they take silver, based on coinflation.com websites values

 

 

each and every day

they also accept it for auto repairs

may not be gold, but close enuf

Thu, 03/01/2012 - 17:16 | 2214497 defencev
defencev's picture

 I would say, it is more than pointless :it is misleading. It always amazed me that people who have absolutely no understanding of finance, economics and investment like to reason about precisely these subject matters. SB has absolutely dismal record when it comes to "investment advice" ( as , by the way 100 percent of bloggers posted here: that is precisely the reason why they post their" predictions" on various obscured websites) and yet here is this ignorant guy again passing his judgement on pretty much everything that moves...

   The major lie promoted by Goldbugs is that Gold is a universal storage of value. It is nonsense and do not take my word on it:

think of 80es (the period of high interest rates) where gold and PM in general plunged to 250 per ounce and stayed there for a very long period of time. What is the point in bringing diagrams showing that measured in Gold prices of most of the commodities plunged during last 5 years (surely, it was a bullish period for Gold and general deflationary envorinment). The truth is that there is no universal storage of value and hence the only right way to invest is to keep reasonably diversified (and that is what investors with proven record like Mark Faber do recommend). Those who put all eggs in one PM basket will end up (with high probability) with nothing.

   Do not get me wrong I do own physical PM but my ownership is a relatively small fraction of my investment portfolio.

Thu, 03/01/2012 - 13:34 | 2213193 Burnbright
Burnbright's picture

I think you mean hold money without having to hold cash.

Thu, 03/01/2012 - 13:38 | 2213211 cygnetsong
cygnetsong's picture

I think you mean hold money without holding tokens.

Thu, 03/01/2012 - 14:00 | 2213312 Uchtdorf
Uchtdorf's picture

I think you mean hold money without holing asswipes.

Thu, 03/01/2012 - 13:34 | 2213194 Honey Badger
Honey Badger's picture

Priced in gold, almost everything looks like gasoline

Thu, 03/01/2012 - 13:42 | 2213233 Coast Watcher
Coast Watcher's picture

Which begs the question: Is gasoline in a deflationary spiral or is gold in an inflationary spiral?

Thu, 03/01/2012 - 13:48 | 2213260 Zero Govt
Zero Govt's picture

Gold (and Silver) is in demand driven entirely by the incompetence, debt and corruption of the State and bankers

it is a crystal clear signal society is losing confidence in these cancerous institutions

Thu, 03/01/2012 - 14:00 | 2213311 Internet Tough Guy
Internet Tough Guy's picture

Everything deflates against the wealth reference point.

Thu, 03/01/2012 - 14:14 | 2213369 Zero Govt
Zero Govt's picture

the "wealth reference point" (Gold) also inflates and deflates in value ...against every other asset class

I've heard some wise financial gurus say Gold is a fixing point (ie. a fixed value) and everything else moves against it. I don't think tha's true

Gold changes value through the years too like any other asset. It changes due to demand. Gold is in much higher demand today due to the tragic state of the banks, the State and the central banks flogging our primary means of exchange Fiat paper

Look how the Gold/Silver ratio fluctuates against each other, from 20/1 to 60/1 ..both are established precious metals as money yet they inflate and deflate against each other due to demand and supply and for other socio-economic reasons

everything changes in value over time

Thu, 03/01/2012 - 13:56 | 2213297 ajk24455
ajk24455's picture

True that!  If CNBC ever threw a chart of the Dow priced in gold it would probably start a panic! 

Thu, 03/01/2012 - 13:35 | 2213197 EmileLargo
EmileLargo's picture

Priced in gold, UK house prices are down 80 percent since 2005.

Thu, 03/01/2012 - 13:35 | 2213199 tony bonn
tony bonn's picture

some people equate gold with lump the way others do electric with chair....these people are utter fucktards and should not be believed just as clinton said of paula jones...

warren buffet is the paula jones of the gold world if not the paris hilton or kim kardashian...he isn't even worth rebutting....

Thu, 03/01/2012 - 13:35 | 2213200 Flakmeister
Flakmeister's picture

So what you are telling us is that based on the charts oil is buy vs gold....

Yeah, that is probably not a bad call...

Thu, 03/01/2012 - 13:53 | 2213284 tmosley
tmosley's picture

He is saying oil and gas are rising due to money printing.

Seems like someone else was trying to tell people that just recently.  Can't remember who though.  When I try to remember, all I get is a scene from Indiana Jones and the Temple of Doom: http://www.youtube.com/watch?v=owZPspxJ4jw

Thu, 03/01/2012 - 13:59 | 2213306 GeneMarchbanks
GeneMarchbanks's picture

Although the petro$ is losing its aura as the 'good as gold' currency, there are several factors involved in the most recent price hike. But if you dudes insist we can just carry on with our usual Peak Oil/Anti myopia as regularly scheduled...

Thu, 03/01/2012 - 14:11 | 2213359 tmosley
tmosley's picture

The other factors all cancel each other out rather perfectly, though.  If they didn't, then oil priced in gold would either be rising or falling.  Instead, it is hardly doing a thing.

http://www.tfmetalsreport.com/sites/default/files/users/u1246/oilpricing...

If it were peak oil, then it should be going up in terms of gold, whether or not there is an economic slowdown.  Instead, we see that the price has done little but go sideways for DECADES.  There is nothing interesting happening in the price today.  NOTHING.  Just paper devaluation that evenly affects both, just as has been the case in most or all inflationary/hyperinflationary episodes.

Thu, 03/01/2012 - 14:14 | 2213370 Flakmeister
Thu, 03/01/2012 - 14:23 | 2213426 Internet Tough Guy
Internet Tough Guy's picture

The gold/oil ratio is managed. It doesn't reflect fundamental supply/demand considerations; it reflects one party's willingness to sell overvalued oil for undervalued gold, through the medium of an overvalued currency.

This is changing.

Thu, 03/01/2012 - 14:25 | 2213434 GeneMarchbanks
GeneMarchbanks's picture

'There is nothing interesting happening in the price today.  NOTHING.'

That is beyond absurd. For one, global demand dynamics are in continual flux and very interesting to say the least. A statement like that makes the zealotry of the Peak oilers who blame every little micro-pop on PO theory seem like small potatoes.

Since nothing in the West is priced in gold, at least for outright purchase, then it makes no difference in practice. You can't buy oil for gold without fiat conversion first unless you're part of the bilateral trade being set up around the petrobuck.

Thu, 03/01/2012 - 15:02 | 2213573 tmosley
tmosley's picture

http://www.tfmetalsreport.com/sites/default/files/users/u1246/oilpricing...

NOTHING.

All the action is on the fiat side.  Sorry, but that is just the way it is.  Save the Malthusian catastrophe for another day, cause this ain't it.

Thu, 03/01/2012 - 14:03 | 2213331 Hugo Chavez
Hugo Chavez's picture

I got one of those thingies in my bdsm dungeon.

It is amazing there are girls out there that want to be tied up and roughly force fucked. There are so few decent doms that an older overweight guy like me can get decent younger chicks, provided they have that itch that needs scratching.

Thu, 03/01/2012 - 14:10 | 2213355 GeneMarchbanks
GeneMarchbanks's picture

Wrong forum, you were looking for creepyrapists.com

Thu, 03/01/2012 - 13:36 | 2213203 leofff
leofff's picture

Well, the Esso station at the corner doesn't accept gold nuggets, and I'm still getting a sore ass every time I go there, so don't tell me gas it at an all-time low. 

Thu, 03/01/2012 - 13:54 | 2213288 tmosley
tmosley's picture

Sorry you didn't take good advice and save in gold and silver :(

Thu, 03/01/2012 - 16:16 | 2214026 Esso
Esso's picture

Wha, WHAT?

Thu, 03/01/2012 - 13:43 | 2213213 Zero Govt
Zero Govt's picture

Gold is money

Fiat is a transient currency.. the real barberous relic of that other transient barberous relic, central (monopoly) banks

Thu, 03/01/2012 - 13:42 | 2213236 Flakmeister
Flakmeister's picture

Given the post and the metric used for evaluating gold, your post is one hell of a non sequitur... 

Thu, 03/01/2012 - 13:54 | 2213283 Zero Govt
Zero Govt's picture

apart from Buffet, baseball, inflation v deflation and gas prices the other topic was Gold

what part does not follow in my post discussing Gold as money?

Thu, 03/01/2012 - 14:07 | 2213345 Hugo Chavez
Hugo Chavez's picture

It doesnt even reach the level of non sequitor.

I would say it is more like a couple of arbitrary defintions.

Thu, 03/01/2012 - 14:55 | 2213546 thomcat00
thomcat00's picture

Time is money, except time isn't money when you have nothing but time. :)

Thu, 03/01/2012 - 14:12 | 2213364 Flakmeister
Flakmeister's picture

Look, I like gold, in fact I own a fair amount of it, in different shapes and sizes and from different countries...

And then there is the ZH equivalent of "Four legs good, two legs bad"...

I swear, sometimes its like a religious revival here with the faithful in some kind of ecstatic state rushing to be born-again for the 100th time...

It happens like clockwork after every major sell off....

Yes, we know that gold is superior to fiat...

You don't have to remind us with every other post...

Thu, 03/01/2012 - 13:39 | 2213216 Moneyswirth
Moneyswirth's picture

The iPad 3 is the new gold

Thu, 03/01/2012 - 14:13 | 2213368 GeneMarchbanks
GeneMarchbanks's picture

Several people have said that to me lately. The last person who mentioned it, I took it away from him and beat him to death with it. I'm wanted for homicide. Worth it.

Thu, 03/01/2012 - 13:39 | 2213217 AnAnonymous
AnAnonymous's picture

Hoarding. Wait for when people will sell their gold (circulation of currency) to buy oil.

Gold bugs are enabled by fiat. That is fiat that allows them to hoard gold without having to circulate gold.

Thu, 03/01/2012 - 14:43 | 2213500 Flakmeister
Flakmeister's picture

There is a certain amount of insight into this statement....

What will be interesting is what food will cost... as a rule of thumb, 1 oz will buy a dressed and slaughtered steer. It has been a while since I checked to see if it still held....

Thu, 03/01/2012 - 18:43 | 2214910 rancher from So...
rancher from South Dakota's picture

commodity corn fed and fed in a concentrated feedlot, hormone enhanced, mass treated antibiotics  600lbs carcass $186.62 , $1119.72      usda

bison as reported by usda  600 lb   $393.08    $2358.48                     usda

our you can get sustainable grass fed  healthy bison off grass never in concentrated feedlot and never force fed grain for $2500-$4500     Me

Thu, 03/01/2012 - 18:56 | 2214945 Flakmeister
Flakmeister's picture

Interesting...thanks..

So the rule of thumb is roughly still valid since I presume that the butchering will set you back ~$400 or a cut of the action...

But for real food, the cost increase has outpaced the rise in gold...

Thu, 03/01/2012 - 17:49 | 2214717 Mikehy
Mikehy's picture

Fiat is never going away. Yes, gold is superior in many ways, but also has its limits. When the country was on the gold standard back in the late 1800's/early 1900's the 99% (at the time) were vehemently opposed to the gold standard. William Jennings Bryant almost became president based on nothing more but an antipathy to gold. in either monetary system people will be unhappy. I guess thats why i am hoping that fofoa is right in his hypothesis. Would be nice if the 2 systems could coexist

Thu, 03/01/2012 - 13:40 | 2213219 EmileLargo
EmileLargo's picture

A graph of gasoline in fiat next to this graph would complete the picture which would say more than Buffett's thousand words.

Thu, 03/01/2012 - 13:41 | 2213224 Ralph Spoilsport
Ralph Spoilsport's picture

I wonder if Buffett is as gay as Malcolm Forbes was? Could explain a few things that have been happening lately.

Thu, 03/01/2012 - 13:41 | 2213225 Dermasolarapate...
Dermasolarapaterraphatrima's picture

Priced in Blueberries, same thing...gas cheap. Should be above $5.00 a gallon.

Thu, 03/01/2012 - 13:51 | 2213271 johnQpublic
johnQpublic's picture

i grow blueberries

wish i could grow gasoline

Thu, 03/01/2012 - 14:01 | 2213322 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

You can!  Plant an acre of corn or fill an old cesspool with algae and you will have enough fuel to get you to the store to buy the food you need to eat.

Thu, 03/01/2012 - 13:42 | 2213230 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

It is not an anti-currency, it is a currency; but unlike fiat currency, it is also money, due to the fact that it stores value to perfection.

Thu, 03/01/2012 - 16:04 | 2213948 viahj
viahj's picture

help me out, what about this scenario...

imagine a gold rush boom town and how at the beginning, a few grains of gold would buy you a hot meal, a bath, and a bed for the night, maybe throw in a fuck as well.  as the gold town booms, more people flood the town with more gold, wouldn't there be some elasticity to the value of the gold then?  providing that the volume of gold is growing faster than the growth of services being provided.  Swearingen, can you comment as well?

Thu, 03/01/2012 - 14:31 | 2213234 LouisDega
LouisDega's picture

Gas at the gas station across from my job was at $5.23 a gallon. For the last three days it was  literally a ghost town at the station with not one consumer from 9am to 5pm. The price dropped down to $3.99 overnight. Wow, How did they do that?  Im amazed!!

Thu, 03/01/2012 - 13:44 | 2213240 mayhem_korner
mayhem_korner's picture

 

 

Gold v. Oil = Alpha v. Alpha

Thu, 03/01/2012 - 13:46 | 2213243 Mercury
Mercury's picture

...a huge cube of gold left alone in a baseball infield will fail to produce any investment return. When managed, however, gold is like any other asset– it can be leased, traded, loaned out, used as collateral, etc.

It's almost like gold is money....real money.

And if the price of a key commodity (gasoline) is deflating in real money terms that means that the economy is...

 

Thu, 03/01/2012 - 13:44 | 2213245 devo
devo's picture

Buffet's biggest misconception is that he should be buying farmland and stocks with fiat, when he should be buying it with gold. It's that simple concept that he fails to understand.

Thu, 03/01/2012 - 13:52 | 2213276 roadhazard
roadhazard's picture

It's such a wonderful graph but it means Nothing. Until gold is the common currency the dollah is king.

Thu, 03/01/2012 - 13:57 | 2213300 mayhem_korner
mayhem_korner's picture

 

 

...because, even in a dollar-denominated world, you can't just convert gold into dollars and get the same result?

Thanks for your thoughtfulness, Mr. Barbarino.

Thu, 03/01/2012 - 13:58 | 2213303 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

The King is dead; long live the King.

Thu, 03/01/2012 - 14:53 | 2213337 A Lunatic
A Lunatic's picture

It still won't mean anything because it's all (mostly) relative; wealth is as much a state of mind as anything, which explains why those "poor little aboriginal kids" don't know they are poor until the Great White Chief frees the shit out of them through a righteous campaign of  carpet bombing, thus paving the way for a McDonald's on every corner........which no one can afford............ at which point they realize they are fucking poor.

Thu, 03/01/2012 - 13:56 | 2213295 Bansters-in-my-...
Bansters-in-my- feces's picture

Kitco's precious metals site shows me that someone is Leasing silver out for almost Negative...thats negative  -0.50%,but when I ask Jon to get me some of that silver thats leased out where I get paid to lease it,he won't tell me where the silver lease supplier is or what thier phone number is,...go figure.

You can get PAID to lease gold too,Kitco's site shows you the lease rates.

They look tempting.

They look like they are very desperate to get the goods to the market.

Ps....Fuck You's Bankers.

Thu, 03/01/2012 - 13:57 | 2213299 walidsassia
walidsassia's picture

Dissidents in Saudi Arabia tell me that there is a fire in the oil pipeline between awamiyyah and safwa

Thu, 03/01/2012 - 14:01 | 2213316 Theosebes Goodfellow
Theosebes Goodfellow's picture

Tyler, thanks for the link to Sir Charles. Very informative stuff.

Thu, 03/01/2012 - 14:03 | 2213330 kito
kito's picture

Good blog for a quick look at musings of world insanity...nearly everyday there is a link to zh........

http://ckm3.blogspot.com/

Thu, 03/01/2012 - 14:05 | 2213338 My Days Are Get...
My Days Are Getting Fewer's picture

Buffett's silver was used to fund SLV.

http://en.wikipedia.org/wiki/Silver_as_an_investment

The Feds must have had something on WB and coerced him to transfer his silver hoard.  He has always been a buy and hold investor.  And, he was "right" when he bought silver bullion in 1997 for $4.50 per oz.  In fact, by holding silver, WB legitimated silver as an investment.  There is little logic to his sale in 2006.  There were "other reasons" which are unknown to me.

 

Thu, 03/01/2012 - 16:30 | 2214162 The Disappointed
The Disappointed's picture

Uncle Warren needed a boating accident. I wonder how many ozs of AG & AU were 'lost' on the Costa Concordia, for that matter.

Thu, 03/01/2012 - 14:06 | 2213342 disabledvet
disabledvet's picture

So far "their luck's been going on 50 years." if you would explore the US system of "land grant universities" you would understand why. In other words "super farms" was the plan going back 150 years ago when "landowners owned millions of acres" in some cases (the Adirondack Park in New York State used to be privately owned for example.) and of course "all I need to do is look at McDonald's stock" and see the result. In short "simple plans that actually work" unlike say "securitization" or "short selling" or "mind martianing."

Thu, 03/01/2012 - 14:09 | 2213350 Caviar Emptor
Caviar Emptor's picture

That's the beauty of gold: it holds the price of real things real. 

Pieces of paper will come and go. Gold never varies. It's the real thing. 

Thu, 03/01/2012 - 14:09 | 2213352 Bansters-in-my-...
Bansters-in-my- feces's picture

Buffets biggest misconception is that he has a brain.

Thu, 03/01/2012 - 14:30 | 2213456 New American Re...
New American Revolution's picture

Still hung up on Chile,... hung up and left out to dry.   I'll take Wisconsin.

Thu, 03/01/2012 - 14:33 | 2213470 Smiddywesson
Smiddywesson's picture

Buffett is a dishonest self promoter who is desperate to be regarded as something more than what he is, a leach on the government teat who would have busted if he wasn't bailed out like any other gambler.

Tying your financial well being to something that just sits there is a pretty smart move when everything else is being swept out to sea.  Mr. Buffett knows this, but he and others of his ilk don't make any money if people don't play in the markets.

This is one of the reasons why gold is hated.  Gold severs the strings of control and zippers the pockets against thieves.

Thu, 03/01/2012 - 14:34 | 2213480 digalert
digalert's picture

Here on the left coast, FEMA region 9, sector Kalifornia, I just paid $4.49 for the cheap stuff (87).

Thu, 03/01/2012 - 14:37 | 2213488 hedgeless_horseman
hedgeless_horseman's picture

 

 

$3.49 in Houston.

Thu, 03/01/2012 - 15:37 | 2213794 hardcleareye
hardcleareye's picture

Ontario Canada it is $1.27/liter CAD = $4.77/gallon US

Thu, 03/01/2012 - 15:42 | 2213824 Jacks Nipple
Jacks Nipple's picture

$3.19 / gal cheap stuff in Winter Park Colorado, and they have to drive those trucks over mountain passes.

 

 

HA

Thu, 03/01/2012 - 14:42 | 2213502 devo
devo's picture

Regarding Buffet's gold/cube anecdote. I mean, all the paper in the world would extend into other galaxies. Doesn't he see the value in scarcity? Of course he does, he's peddling his BRK.A shares and acquiring assets, likely gold.

Thu, 03/01/2012 - 14:52 | 2213532 Elvis is Alive
Elvis is Alive's picture

Nice post. I don't see anything fundamentally wrong except for one thing. You can let land sit as easily as gold. The difference is that land can be used and made more productive while gold can't be.

As for the price of gold and gasoline, I think both are overpriced. The notion that gold has a finite quantity and therefore can't go down is nuts. People thought the same of real estate eight years ago, and the amount of real estate unlike gold isn't going up every year.

And for all the talk of gold being an inflation hedge, the price fell from 1980 to 2000 when the U.S. had moderate inflation and other countries had severe inflation.

People flock to gold when there is fear, and there is big time fear right now, but there is no reason gold can't crash like it did in the 80s.

The problem with this market is that all asset clases are up. When oil companies and transports move in lock step up, that means prices are being buoyed by easy money not fundamentals. And to me, that just means more of this easy money has gone to gold than oil.

A big part of the gold rally has been people buying gold in the event the government freezes accounts or seizes one's property and appropriately so. So I'd be careful with the gold-oil comparison. The reason oil is cheaper relative to gold is that people can't haul off a 100,000 barrels of oil across a border.

 

Thu, 03/01/2012 - 15:06 | 2213579 devo
devo's picture

I think you're spot on, but it's better to have 10-20% of wealth in gold "just in case" things get bad. Fear? Sure. But that's an animal instinct and likely piqued for good reason.

Gold went nuts during Weimar Republic's last days, and we're on that path.

Thu, 03/01/2012 - 15:17 | 2213695 Antifaschistische
Antifaschistische's picture

Buffett is a slight-of-words artist and he knows it.

If you wanted to "quit your day job" and start a business (investment) of course, you would not go buy a pile of gold, or silver, of copper, or nickel, etc.   Youd use your money to buy a business, or start one that generated cash flow.  Buffett needs millions of sheeple to give him money so he can go buy businesses.   He could never convince anyone to give him money, to buy gold for them.  That would be a failed model for BRK and gold in fact is not a business.

But I have my day job, and I'm not looking for an investment in that classical sense.  I want to save wealth.  Buffett knows this and intentionally avoids informing his sheeple that gold, silver, etc. are actually excellent mechanism for storing wealth over the long term.  Which is really what most of his sheeple want...but if they understood this, they'd sell BRK and buy gold.  Then the overvalued BRK party would end.

Thu, 03/01/2012 - 15:37 | 2213806 Maroon Phoenix
Maroon Phoenix's picture

Doesn't this just mean buy oil, sell gold?

Thu, 03/01/2012 - 15:55 | 2213905 MacroAndCheese
MacroAndCheese's picture

I don't see your point, sorry.  Maybe we should price gasoline in bananas.

Thu, 03/01/2012 - 16:34 | 2214219 The Disappointed
The Disappointed's picture

...and then we say 'Yes, we have no bananas'.

Thu, 03/01/2012 - 19:28 | 2215038 fogcity1981
fogcity1981's picture

looks like it is time to trade all my gold for gasoline.  

Thu, 03/01/2012 - 21:03 | 2215285 Cole Younger
Cole Younger's picture

Unless we move back to a gold standard, pricing anything in gold is useless. What goldbug is going to sell there gold to buy gas so they can pay cheaper at the pump?

Sat, 03/03/2012 - 00:39 | 2219125 q5251355
q5251355's picture

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