Arguments against gold from stock newsletter

wpr101

"This time around, Munger reserved his sharpest barbs for goldbugs, calling them, essentially, "irrational jerks." Goldbugs, perhaps predictably, went nuts in indignation. And they had a point: They own gold because it's the only currency that can't be debased by economic mismanagement.

But have you ever thought about just how bizarre investing in gold is? The process, at its core, is totally nuts. Dig some metal out of a hole deep in the Earth, refine it, sell it to someone who buries it in some other hole deep in the Earth. The amount of economic productivity from investing in gold is almost exactly zero. Gold doesn't launch new companies or finance new infrastructure; it creates almost no jobs. It's just a pretty yellow metal. Pretty. Yellow. Pretty.

And that was Munger's point. People may hoard gold for fear of economic disaster, but this comes at a cost to society. When you invest in stocks or bonds, you are essentially making your capital available for someone else -- be it a company or a government -- to put to productive use. Munger has become a billionaire several times over in no small part due to his extreme capacity for making rational decisions, so it should be no wonder that he spares little sympathy for financial decisions that he deems irrational"

http://www.foolfunds.com/commentary/2010/10/letter-to-shareholders-october-2010.aspx

RedTiger

From reading bits of the article, Munger sounds like a bitter old man. Perhaps he has spent too much of his life doing what he describes here:
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This is the same guy who once told an 11-year-old aspiring investor that "if all you succeed in doing in life is getting rich by buying little pieces of paper, it's a failed life."
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The article says Munger hit just about everyone in his speech, not just gold investors:
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In the course of a short talk at the University of Michigan, the Berkshire Hathaway vice chairman managed to insult nearly every person in America...
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In general, it isn't worth much time or energy commenting on someone who is full of bitterness and the need to publicly express it. It is an interesting observation that even several billions of dollars in net worth, doesn't seem to have bought Mr. Munger much peace of mind.

wpr101

Yea, I agree with you; he does sound very bitter. Him and Buffett both rip on wealthy people it seems, like Buffet avocating raises taxes. Self haters in my opinion.

Also, their arguments against gold seem incredibly dumb to me. Don't invest in gold because it will make you a jerk?

roadrunner

But have you ever thought about just how bizarre investing in gold is? The process, at its core, is totally nuts. Dig some metal out of a hole deep in the Earth, refine it, sell it to someone who buries it in some other hole deep in the Earth. The amount of economic productivity from investing in gold is almost exactly zero. Gold doesn't launch new companies or finance new infrastructure; it creates almost no jobs. It's just a pretty yellow metal. Pretty. Yellow. Pretty.

It is true that the amount of economic activity from gold investing in pretty close to zero on an annual basis....at least in the respect that it pales in comparison to stocks, bonds, and currrencies. It might as well be zero. So what's the point? The gold market is very tiny and really has little to no influence on those other 3 markets. It responds to their movements, not the other way around. The discovery of a new gold mine doesn't send the dollar plummeting. But the issuance of a few hundred billion dollars out of nowhere certainly pushes the gold price around. Mr. Munger needs to find another moon to bark at.

And that was Munger's point. People may hoard gold for fear of economic disaster, but this comes at a cost to society. When you invest in stocks or bonds, you are essentially making your capital available for someone else -- be it a company or a government -- to put to productive use. Munger has become a billionaire several times over in no small part due to his extreme capacity for making rational decisions, so it should be no wonder that he spares little sympathy for financial decisions that he deems irrational"

Now this is the bizarre part. These were the same 2 guys who had around $1 BILLION stashed in physical silver in the later 1990's. Hey Warren, wasn't it weird to stash 120,000,000 ounces of silver in a hole for the better part of a decade, what were you thinking? Dumb as a fox right? If they had held that silver to now (and not succumbed to external govt/regulatory/offer too good to refuse pressures) they'd have tripled up and be sitting on a literal silver mine right now. How soon they forget....lol. And it's believed they held this position for 7-9 yrs....a pretty long period to be "totally nuts." Mr. Munger, before you bash the gold/PM bugs, it might be helpful to look in the mirror. I love their argument: don't buy gold or silver just because we did. We didn't know what we were doing and cut our position JUST before silver exploded for the first time in 2004 ...........lol. Some think that Buffet's silver was the starting capital for the ETF SLV as there was no other way to go out and find 100MILL ounces w/o disrupting the market. Considering that the Wall Street geniuses came up with this ETF, it has probably been a means to help control the price of silver rather than to promote. The fact that they kept it under $20 for so long (JPM only recently wound their trading down) sort of speaks to the probable manipulation.

The idea of accepting a piece of toilet paper as negotiable money is what is really bizarre. Imagine what our FF's would think of this today? And that fact that zillions of this fiat stuff is created from nowhere is certainly not contributing to true long term economic activity, but merely shorter term bubbles. We robbed Peter to pay Paul over the past 40 yrs....it's as simple as that. No it's time for Peter and Paul to pay the Piper. The tiny amount of money that goes into the gold market has literally zero bearing on the world's economic activity considering that all the gold activity is probably only <2% of world economic activity. Mr. Munger should pay attention to the other 98% if he wants answers. Those 2% of investors aren't hurting anything in the economy except possibly themselves if they are wrong. Maybe Mr. Munger should swing an axe at the art, antique, and collectibles markets as they probably encompass a bigger share of wealth than gold does. All those foolish billionaires investing in rare paintings and not contributing those millions to a productive activity. I wonder if those investing in LTCM, Enron, AIG, Lehman, Bear Stearns, Walmu, Merrill Lynch, WorldCom, Madoff, Stanford, Ponzi and other "investments" feel better deep down because they were investing with an economic "producer?" How many think that our top 5 too big to fail banks are "economic producers" rather than money launderers? (they are responsible for over half of GDP). BH has a large stake in Goldman Sachs, Wells Fargo, and GE....we know where their bread is buttered.

roadrunner

meluaufeet

<< <i>People may hoard gold for fear of economic disaster, but this comes at a cost to society >>



'Fear of economic disaster'... isn't that special...

'Cost to society'... isn't that rich...



<< <i>Dig some metal out of a hole deep in the Earth, refine it, sell it to someone who buries it in some other hole deep in the Earth. >>



... isn't that original...




So what will they call us when we in effect 'repatriate' our pm's back to currency and help the rebuilding of our economy? Yeah... keep up the name calling... guilt card playing... mocking bird singing... I don't have to help our economy... I can just choose to save mine, and my family.

I apologize in advance for the rant.

fishcooker

I would save the irrational jerks comment for the investors who shorted after 9/11.

roadrunner

The one thing Munger never mentions is why Central Banks carry 31,000 tons of the unproductive metal and refuse to let out any information about gold sales, leases, and swaps. Why did the ECB stop the annual sales of 500 tons per year? That's a lot of effort to protect an unproductive asset with no economic good. How did our nation even survive up to 1971 on a non-fiat money standard......darn savages! At least we've been doing it right for the past 39 yrs.

roadrunner

Baley

I view gold and silver (and other hard commodities) as stored human work. The effort required to mine and refine the metal from the ore is contained in the bullion, and it can be used as money to trade for the products of other human efforts. Any commodity can work as barter money medium of exchange, but it is a lot more convenient to deal in metals than barrels of oil or pork bellies, and metals are a lot less prone (as in zero risk) to spillage and spoilage, and a lot more liquid than bulky, less universally recognized and demanded media.

And although not immune to manipulation of the markets, a lot less prone to crazy leverage, flooding the market, and outright fraud than paper securities and cash

derryb

No sweat, my real estate newsletter contains arguments against stocks. It's kinda like the negative political advertising where candidates who have nothing good they can say about themselves spend their money saying bad about their opponent.

Justacommeman

Buffett and Munger are part of this current administration. It's their job to talk down gold. MJ

wpr101

<< <i>Buffett and Munger are part of this current administration. It's their job to talk down gold. MJ >>



lol good point, and very true

HalfStrike

I will take the buy gold commercials on TV any day over the endless Berkshire Hathaway Geiko commercials that are utter nonsense. At least with gold there is something valuable to look at.

jmski52

I hereby apologize for the cost I've thrust upon society by buying gold, silver and platinum instead of throwing it at stocks and T-bills that I know would help to support the government spending programs, banker bailouts and the purchase of a senator or two from Nebraska and/or Arkansas.

Added: (and Louisiana).

Higashiyama

I think the simplest response is as follows:

The cost of mining, refining, transporting, and storing gold is small compared to the value to society of a stable currency regime.