Warren Buffett: If Gold Went to $1000 I Still Wouldn’t Be a Buyer

Berkshire Hathaway CEO Warren Buffett (BRK.A)(BRK.B) spoke with FOX Business Network’s (FBN) Liz Claman live from Omaha, NE on the eve of the Berkshire Hathaway Annual Shareholder Conference. Buffett discussed Bekshire’s succession plan and who might replace him and said, “I’ve used the pronoun he and it’s a he – he will be very good. Maybe 10 years or 15 years from now it will be a she. I hope it is.” Buffett also discussed sending his first tweet today, saying, “They gave me something and they said push here. That was the limit of my capabilities.” When discussing the recent drop in gold prices, Buffett reinstated, “I am not a buyer of gold” even “if gold went to $1000 I still wouldn’t be a buyer. If it went to $800 I wouldn’t be a buyer.”

On his succession plan:

“I would point out we have investments totaling almost $50 billion in 4 companies, IBM, Coca Cola, Wells Fargo…I don’t know who’s going to succeed the present CEOs there and in every case, each one of the four they have changed CEOs since we started buying the stock in certain cases more than once. I never knew who they were going to be, I knew they’d pick good people. And there’s no one more concerned about the successor than I and we spend more time at the board meeting talking about that, if something happens to me tonight if I pick up 13 spades and my heart gives out the board tomorrow morning will have somebody and – I’ve used the pronoun he and it’s a he – he will be very good. Maybe 10 years or 15 years from now it will be a she. I hope it is.”

On how he made his first tweet:

“They gave me something and they said push here. That was the limit of my capabilities.”

On Moody’s downgrading Slovenia to junk:

“We own a few less [shares of Moody’s] than the other day … we’ll see more surprises but it really doesn’t make any difference. I am not going to sell my farm that I own or my apartment house I own because of some news that happens next week or next month.”

On whether he’d invest in gold:

“No, gold is not reproduced or anything since I wrote about it in a year or two ago. It just sits there and you hope somebody pays you more for it. If gold went to $1000 I still wouldn’t be a buyer. If it went to $800 I wouldn’t be a buyer. It’s never really interested me…I am not a buyer of gold or silver.”

On whether he thinks America is doing something wrong because of the poor jobs numbers:

“You can always say there may be something we can do better but this country has been doing pretty darn well. what we went through in 2008 was something like I’d never seen. A lot of things that were a whole lot worse than what happened could have happened if we handled things wrong. I give credit to Bernanke, and Hank Paulson, George Bush, Barack Obama and Tim Geithner. Overall they did some very gutty things, they did some very right things and anybody can look back and second guess it but this country went through a shock like I’ve never seen and it’s functioning pretty darn well now.”

On whether the snow in Omaha will affect the number of shareholders who are attending the investor conference this weekend:

“I wouldn’t think it would affect it. I expect a record but we never really know for sure because they come and leave, back and forth. But we’ve got more tickets sent out, everything indicates we’ll have a record.”

On what vulnerabilities he sees in the US markets:

“I don’t think the US is terribly vulnerable. The recovery is a lot slower than people would like but it is a recovery, it’s a constant recovery. You can say Europe has got plenty of problems.”

Source: http://www.gurufocus.com/news/218043/warren-buffett-if-gold-went-to-1000-i-still-wouldnt-be-a-buyer

Gold’s Declining Price Is a Reversion to the Mean

Since the beginning of the economic crisis in 2008, conservatives have been predicting that inflation is right around the corner. They base this prediction on the vast increase in the money supply that the Federal Reserve brought about in order to keep the financial system from imploding. Because a too-rapid rise in the money supply did indeed bring about inflation in the 1970s, conservatives believe that a repetition of that experience is inevitable.

Perspectives from expert contributors.

Many conservatives jumped heavily into the gold market in 2009 based on their expectation of inflation or even hyperinflation. They believe that gold is the best possible hedge against inflation because it is something real, whereas “fiat money” is essentially worthless.

Initially, gold investors were rewarded. The price of gold roughly doubled between 2009 and 2011, from about $900 an ounce to about $1,800 an ounce. Since then, however, the gold price has fallen fairly steadily, reaching about $1,600 an ounce before a sharp break in the last two weeks that brought the price down to about $1,400 an ounce. (Kitco, a precious metals dealer, is a good source of recent gold price data.)

The rise in gold also led some conservatives to renew their advocacy of the gold standard. They believe that all our economic problems are fundamentally caused by the unstable value of money, which results from Federal Reserve manipulation. The Lehrman Institute, a well-financed conservative organization, has been actively promoting a return to the gold standard.

The core argument for the gold standard is that the real price of gold doesn’t vary over time. All nominal price changes result solely from changes in inflationary expectations, gold standard advocates believe. They point to research by the economists Roy W. Jastram and Stephen Harmston to the effect that over very long time periods the real, inflation-adjusted gold price is roughly constant.

What gold standard advocates tend to forget, however, is that the “very long time periods” part of the analysis means over centuries. The short-run price of gold basically indicates nothing insofar as monetary policy is concerned. As a thinly traded market, gold is often subject to manipulation and prone to bubbles and crashes.

Warren Buffett warned about a gold bubble in a 2011 letter to investors in his company, Berkshire Hathaway, in which he said:

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.”

In the long run, the price of all assets revert to their fundamentals. For the last four years, gold speculators have implicitly believed that the rise in gold represented an adjustment to the fundamental fact of underlying inflation resulting from expansion of the money supply. But in that time, the actual rate of inflation has not confirmed gold’s signal. According to the Bureau of Labor Statistics, the Consumer Price Index rose 2.7 percent in 2009, 1.5 percent in 2010, 3 percent in 2011 and 1.7 percent in 2012.

Inflation so far in 2013 has been so modest that some analysts are anticipating deflation – a falling price level, the opposite of inflation. The Wall Street Journal reports that prices for gourmet cupcakes are crashing. Even a longtime “inflation hawk,” James Bullard, president of the Federal Reserve Bank of St. Louis, is now warning that downward price pressure is becoming a problem that may require the Fed to further ease monetary policy.

In an recent paper, the economists Claude B. Erb and Campbell R. Harvey present strong evidence that the gold market was severely overbought. The increase in gold prices did not represent a change in the trend of inflation. As the chart indicates, even with the sell-off, the price of gold is still high and has a long ways to fall to get back to the “golden constant” that gold-standard advocates cite as proof that the dollar should be pegged to gold.

Claude B. Erb and Campbell R. Harvey

Most gold bugs consider themselves to be libertarians and support the gold standard and gold as an investment because of their deep distrust of government. But the greatest libertarian of the 20th century, the economist Milton Friedman, always thought that the gold standard was nuts. His argument was put forward most thoroughly in a 1961 academic journal article, “Real and Pseudo Gold Standards.”

Source: http://economix.blogs.nytimes.com/2013/04/23/golds-declining-price-is-a-reversion-to-the-mean/

Stock Market & Gold: An Opportunity Like We’ve Never Seen Before?

By Michael Lombardi, MBA

I’m so excited this morning; I can hardly control my excitement.

Being the type of person who looks at the glass half-full as opposed to half-empty, I see yesterday’s sell-off in most investment categories as presenting investors with huge opportunities for profit.

Let’s start with the stock market: Since August, there have been five breakdowns by the Dow Jones Industrial Average to the 10,500 level. Subsequent to each of the downside moves, the stock market has rallied. As of last night’s close, the Dow Jones Industrials are selling at only 12.2 times this year’s earnings! The Dow Jones Industrials offer a dividend yield today of 2.9%—trumping most other forms of investment in respect to income.

The stock market is severely oversold; there is great value in stocks.

Moving to precious metals, the big correction in gold and silver I have been predicting and warning about is on! Finally, gold’s back under $1,700 an ounce. Finally, silver is back under $33.00 an ounce.

If you believe that the world’s financial problems will go away, if you believe that the U.S. will get out from under its mountain of debt, sell your gold.

On the other hand, if you recognize that gold bullion has risen $397.00 an ounce in the past 12 months (31%) and investors are finally taking some profits off the table, if you believe that the world’s economic problems will only get worse, that the U.S. will continue piling on the debt, that U.S. dollars will continue to be printed at a rate that spurs inflation (all the stuff I believe), then you might want to take this opportunity to buy more gold investments (like I am).

Global Stocks Enter Bear Market,” said the headline on a Bloomberg news story yesterday. Investors are panicking again and stock advisors are at the most bearish level in months. When you see this amount of negativity, stocks usually go the other way and climb the wall of worry higher. Stock market rallies end when investors are most optimistic, not when they are as pessimistic as they are today.

Michael’s Personal Notes:

Shares of Warren Buffett’s Berkshire Hathaway Inc. (NYSE/BRK-A) are trading at $100,000 for the first time since the beginning of 2010. I believe there are two reasons this is happening and I don’t believe the price action of Berkshire stock is indicative of the future of general stock prices.

First of all, the company’s reinsurance units have taken a hit. Japan’s earthquake in March and the U.S. windstorms this year have resulted in Berkshire Hathaway Reinsurance Group taking a loss in the first half of 2011.

Secondly, as the company has grown so much, it’s just getting tougher to make deals with big returns. Most of Buffett’s bets have been secure ones: buying preferred shares of big companies and getting a small of amount of warrants as a bonus. The bigger Berkshire has become, the more difficult it has become to make deals where the eventual returns are substantial. Berkshire will be hard pressed to find a deal like Coca-Cola again.

Where the Market Stands; Where it’s Headed:

Despite yesterday’s sell-off in stocks, I believe we continue to be in a bear market rally in stocks that started in March of 2009. Yes, the rally has been long and is getting tired, but I believe the bear market rally has more upside potential left.

What He Said:

“Partying Like a Drunken Sailor: The party continues. Stocks are making new highs and people are spending like there is no tomorrow. Why? I really don’t know. Big (cap) stocks, they just continue going up. Wall Street bonuses are at record levels. Popular consumer goods are flying off the shelves. Designer clothes, fast and expensive cars, restaurants with one-hour waits…people are spending in America today at an unbelievable clip. 1932, 1933…who remembers those years? The depression of the 1930s was the biggest bust of modern history. 2005, 2006, 2007…welcome to the biggest boom of the same period. When will it all end? Soon, my dear reader. Soon.” Michael Lombardi in PROFIT CONFIDENTIAL, February 7, 2007. Michael started talking about and predicting the financial catastrophe we began experiencing in 2008 long before anyone else.