It may be the crowning irony of our unsettled times that the most successful investor in the world seems to know very little about the true nature of money.
In a current but already infamous article for US magazine Fortune, Warren Buffett lays out a now-familiar stall: given a choice between bonds, precious metals and stocks, we should all buy stocks.
I have no beef with Buffettâs long-term investment track record, which is second to none. My problem with Buffett is how he has made those returns in recent years.
In the early part of his career, Buffett was one of the most successful exponents ever of deep-value investing, identifying out-of-favour companies with sound prospects trading at unnaturally depressed levels, then loading up the truck.
But as Berkshire Hathawayâs assets have swelled to gargantuan levels, he has been reduced to buying selective investments in Wall Street firms that, from any moral perspective, should have been allowed to fail.
With Saint Warren writing the cheques, those deals were well beyond what ordinary investors could or perhaps even should have been able to arrange. Suffice to say, Buffett has been a keen supporter of the US governmentâs bail-out of Wall Street, in what may amount to the biggest transfer of wealth in the history of the world, from the 99% to the 1%.
In his Fortune advertorial, Buffett ties himself up in some tortuous knots of logic and linguistics in order to disparage gold as a store of value. In one moment he concedes the staggering loss of purchasing power suffered by the US dollar over the past half century (some 86% by value). He goes on to acknowledge the paucity of returns likely from both currency and T-bills (which he takes pains to describe as offering return-free risk).
âGreater foolâ theory
But he then excoriates gold and gold investors on the flimsiest of pretences â that we are all advocates of âgreater foolâ theory, all buying gold on no basis stronger than a belief that, in the future, sillier buyers will pile in at higher levels.
Buffett then criticises gold by adopting a ridiculous âstraw manâ argument. Picture a cube of gold representing the entirety of global supply â worth some $9.6 trillion at current prices. Then picture a cube of equivalent value, with which we could buy the entirety of US agricultural land and still have room to buy 16 Exxon Mobils on top. Who would conceivably favour cube A over cube B?
But this is a spurious argument. Nobody ever suggested that gold was a productive asset. Nobody has ever bought bullion with the ambition of eating it or using it as fuel. The point about gold is that, throughout millennia, it has held its value as a monetary asset, better than any purely fiat currency ever has.
I find it hard to believe that Buffett doesnât appreciate this. On the other hand, Buffett has made very expensive forays into markets like silver in the past, so perhaps he genuinely doesnât get the point about rare and monetary metal in a world of state-sanctioned inflationism.
Buffett concedes that he has enjoyed a charmed life. His unique blend of value-obsessed and contrarian skills has served him and his investors well. He has been lucky enough to practise his craft during a tremendous upward surge in the US economy, borne aloft on a rush of cheap dollars pumped into the market by an accommodating central bank.
Downplaying prospects
But even then, Berkshireâs fortunes have stagnated as its institutional heft has become ungainly. Since 2000, gold has outperformed Berkshire Hathaway stock by some 400%. There are good reasons for Buffett to be downplaying prospects for the metal.
My hostility to Buffettâs piece may owe something to the unshakeable sureness it appears to convey. As Voltaire once said, doubt is not a pleasant condition, but certainty is absurd. We are living through desperately uncertain times. A 40-year experiment with credit-backed money is showing every sign of failing.
The world labours under a mountain of debt that it is mathematically doubtful will ever be repaid in full. Eurozone technocrats are spinning all kinds of plates to try and avoid a break-up of the currency union. Central banks are inflating their balance sheets and pumping unbacked money into the system to try and ward off a deflationary depression.
Buffett is not alone in advocating stocks in this environment â Blackrock chief executive Larry Fink, recently interviewed by Bloomberg, advised his audience to âbe 100% in equitiesâ.
Shills for the Wall Street and monetary establishment, in other words, are trying to convince us that it is business as usual. I have grave doubts that an equity-centric portfolio will serve savers well when equity markets are being buoyed up upon a tide of easy money.
At some point, central banks will be forced to reverse their explicit inflationist policy, or all hell will break loose. I can see merit in quality stocks, but I have sufficient lack of faith in our monetary masters to be invested in a variety of other things besides.
⢠Tim Price is director of investment at PFP Wealth Management. He also writes The Price Report newsletter.
Category: Investing in Gold