Warren Buffett has made billions investing For th

first_imgWarren Buffett has made billions investing. For that, the financial press and most investors hang on his every word. Is he a genius of all things? Far from it. As Doug Casey describes, Buffett is merely an idiot savant. The Oracle of Omaha famously hates gold. His father, Congressman Howard Buffett, was a great champion of sound money and the gold standard. Unfortunately, Warren continues to rebel against his father’s conservative convictions. Gold, Warren says, “gets dug out of the ground in Africa, or some place. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.” The yellow metal has served as money for centuries, but Buffett doesn’t seem to understand money. A good money should be: recognizable, divisible, homogenous, portable, durable, have a fairly stable value, and be generally marketable. Buffett’s beloved equities do not come close to possessing all of these qualities. While you could probably bribe a surly guard at any of the world’s borders with a gold coin, see how far offering him a share of Exxon gets you. Bashing Bitcoin Now we can add Bitcoin to the list of things Buffett despises. He claims that Bitcoin is “not a currency,” and says, “I wouldn’t be surprised if it wasn’t around in the next 10-20 years.” We could say the same about Buffett, although his Cherry Coke and hamburger diet is serving him well so far. It is a bit worrisome, however, that he was unable to pick out his favorite drink in a blind taste test, despite reportedly knocking back 60 ounces of the stuff daily. Anyway, in his dissing of Bitcoin, Buffett said the cybercurrency is “not a durable means of exchange or store of value. … It’s a speculative Buck Rogers type of thing. … People buy or sell them hoping they’ll go up or down like they did with tulip bulbs a long time ago.” That’s not exactly true. As I wrote a few weeks ago, quoting John Hathaway, “There is (as yet) no Bitcoin futures exchange, no Bitcoin derivatives, no Bitcoin hypothecation or rehypothecation.” To speculate in bitcoins, you have to actually buy bitcoins. There is no established exchange or mechanism to borrow them and sell them short, nor is there a way to purchase them on leverage, as Buffett would imply. By comparison, the tulip bulb market in 1636 Amsterdam was designed for speculation. The bulbs were in the ground, so it was a futures market from September to June. Buyers were only required to put up a small fraction of the contract price. Very few bulbs were actually delivered, and trades settled with only a payment of the difference between the contract and settlement price. In reality, Bitcoin is used more for commerce than speculation. More businesses are accepting bitcoins for payment every day. Libertarian Patrick Byrne’s company, Overstock.com, now accepts bitcoins, and the number of customers using the cybercurrency is growing exponentially. Byrne admits the company is not holding the bitcoins because it can’t pay its suppliers with them. So Overstock immediately trades any bitcoin it receives for dollars. Contrary to Buffett’s view that the Bitcoin market is some frothy bubble of speculation, the selling pressure of retailers like Overstock puts constant downward pressure on Bitcoin’s price. A Matter of Trust “Satoshi Nakamoto” created Bitcoin as an answer to government’s continued money creation and mismanagement. Satoshi, whoever he, she, or they is, wrote: “The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible.” Trust has been a problem lately in the Bitcoin world. The third-largest exchange, Mt. Gox, filed bankruptcy after 850,000 bitcoins were stolen. A Bitcoin bank, Flexcoin, folded this week after 896 bitcoins were taken. This is after underground commerce site Silk Road, which only accepted Bitcoin, was shut down by the authorities, and BitInstant CEO and Bitcoin millionaire Charlie Shrem were arrested for money laundering. Despite all of this negative news, a single bitcoin will still set you back $668. That’s about half the high of $1,280… but still over 10x the price a bitcoin went for just last summer. Gold 2.0? The limited amount of bitcoins and the difficulty in creating new ones makes it “gold 2.0,” according to Chriss Street, writing for American Thinker: “Since the beginning of human history, only about 5.6 billion troy ounces of gold has ever been mined. The value of gold is rooted in its medium rarity, easily handling and other qualities most other metals lack. These properties are the basis of gold serving as money. Bitcoin has a stark resemblance to gold: ‘Both are backed by no one. Both are, relative to fiat currency, inconvenient for day to day use. Since there is a limit of 21 million that may ever be “mined” by the year 2140, Bitcoins are rare units of exchange. Bitcoins will remain rare like gold.’” When it comes right down to it, Warren Buffett doesn’t like Bitcoin for the same reason he doesn’t like gold. Inflation helps his investment business, so he hates anything that might be deflationary. Bitcoin, like a true gold standard, could bring deflation. Paul Krugman hates the idea for same reason. Back in December, Krugman wrote a blog post at the New York Times titled “Bitcoin Is Evil.” The Keynesian Nobel laureate quoted Charlie Stross: “Bitcoin looks like it was designed as a weapon intended to damage central banking and money issuing banks, with a Libertarian political agenda in mind—to damage states’ ability to collect tax and monitor their citizens financial transactions.” Outperforming Buffett If you bought a share of Berkshire Hathaway during the week of March 13, 2000, it would’ve cost you $51,300. Today, that share goes for $177,989. If you instead invested that same $51,300 into gold, you’d now have $236,531 worth of gold. Bitcoin, of course, wasn’t even an apple in Satoshi’s eye in 2000. But since being created in 2009, it has skyrocketed from pennies per coin to over $600/coin. In other words, both of these “unproductive” assets have handily outperformed Buffett. Maybe that’s why he hates them. The Oracle may be an investing phenomenon, but when it comes to money, he doesn’t have a clue. When Buffett talks stocks, listen up. But when his proclamations veer into monetary matters, you’re better off covering your ears.last_img

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