Archive for February, 2012

Warren Buffet doubts gold

Monday, February 27th, 2012

Warren Buffet points out that land produces wealth, and gold does not. His argument leads to the conclusion that had a Roman in the time of Caesar invested a talent in land, or deposited some money with the money lenders to earn interest, his descendents would now be worth 1067 talents, or about one trillion trillion trillion trillion trillion trillion dollars, whereas had that Roman buried a talent of gold in the ground, that Roman’s descendents would now be worth about one talent, which is a few hundred dollars.  Clearly there is a fallacy somewhere.

Warren Buffet tells us:

The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). 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.

Not so. What motivates most gold purchasers is insurance against their fears becoming true.

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.”

Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A. Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying
binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?

Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators – must continually absorb this additional supply to merely maintain an equilibrium at present prices.

A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons).

Warren thinks that if you invest in cropland, rather than gold, then at the end of the day, you will have the cropland and the crops.

But alternatively you get a one way trip to the gulag as the great and the good, the wise and the virtuous, look for scapegoats to punish for the failure of utopia to arise at their command. They command utopia, notice that there is no food. Obviously those who own cropland must be at fault, and need to be punished.

What motivates most gold purchasers (and thus most bitcoin purchasers) is their belief that their fears might well prove correct, that without gold, they might find themselves penniless refugees, or, worse, without even the ability to become penniless refugees, because they lack the funding to leave a collapsing society.

Gold is an end of the world investment, insurance against total institutional collapse. We tend to underestimate fat tail risks such as total collapse, since the English speaking world has never had a total institutional collapse since the battle of Hastings in 1066.

This however, is survivorship bias. In the rest of the world, total institutional collapse has been rather common. What would have been the best investment for a Russian, an Austrian, a Hungarian, or a German in 1900?  Survivorship bias causes us to overlook fat tail risks.

Warren Buffet correctly argues that gold will, on average, lose value. However there is a significant risk that everything except gold will lose value.

What the DenialGate fake reveals about warmists

Friday, February 24th, 2012

Peter Gleik phished some genuine files from the Heartland Institute.  The files revealed what everyone knows,  what no one has ever denied, and what the Heartland Institute has frequently announced:  That the Heartland Institute is funding science that is skeptical of global warming, though its funding is ludicrously tiny, while Peter Gleik received half a million dollars to attack skeptics and help the warming cause.

He then created what he probably considered to be a truthful  summary of these files and fraudulently attributed his summary to the Heartland Institute.  Doubtless he thought of the summary as fake but accurate. The summary, however, is written from within the left worldview, not from the Heartland Institute worldview. It contained numerous tells, lines that gave away its true authorship, among them its description of Gleik as a climate scientist, rather than a political activist, and gave away much about the minds of leftists. (more…)

Laffer Maximum

Friday, February 24th, 2012

Britain decided to increase income tax on the top one percent of taxpayers to fifty percent.  Predictably, revenues from the top one percent of tax payers collapsed.

This demonstrates the entirely unsurprising fact that a income tax of 50% plus VAT tax of 20% for an effective tax of 60%, is well above the Laffer limit.

I doubt that this came as any surprise to those imposing the tax.  More likely the tax was imposed for political reasons, so that heavily taxed poor people would spitefully and self destructively vote for high taxes because rich people are taxed even more.


Monday, February 20th, 2012

People that vote conservative tend to reproduce. People who reproduce tend to vote conservative. People who live in places where the environment is favorable to reproduction tend to vote conservative, because they are apt to worry about the future. Leftist in power make the environment less favorable to reproduction, thereby making the electorate lefter, by making the electorate less worried about the long term fate of the political system. (more…)

Michelle Fields interviews the astroturf

Tuesday, February 14th, 2012

The supposedly 99% attempted to occupy the supposedly 1%, the CPAC conference.

But it seems the 99% were a bit hard up for warm bodies.


Murray refuted

Monday, February 13th, 2012

I found Murray’s major theses in Coming Apart: The State of White America, 1960-2010, hard to believe, in particular, that the elite is sexually well behaved. (more…)

The virtuous upper class?

Friday, February 10th, 2012

According to Charles Murray in  the top 20 percent of citizens in income and education exemplify the core founding of industriousness, honesty, marriage, and religious observance.  They raise their children in stable homes.

This is not my observation. My observation is that the the higher the socioeconomic status of the male, the better his behavior, but the higher the socioeconomic status of the female, the worse her behavior. (more…)


Friday, February 3rd, 2012

Total sales are rising ten percent a year in nominal terms.    Surprise surprise, shadowstats estimates ten percent inflation per year if we use the measure of inflation that was used in the the 1980s.    Hawaiian Libertarian reports that that is pretty much what he is seeing when he puts his money down.

So what is the true rate of inflation?

There is no one true rate of inflation, since to estimate inflation, one has to compare apples and oranges, and there is no one valid way of doing this.

But if inflation is substantially less than ten percent a year, we are consuming substantially more goods this year than last year.  Do you think we are consuming substantially more goods this year than last year?

But whatever the true rate of inflation might be, it is increasing.  It is not increasing fast as I expected, not increasing very fast at all.  It is increasing at about two percent a year, so if this year inflation was not ten percent, but eight percent, next year it will be ten percent a year, and the year after that, twelve percent a year.  The rate at which prices increase, is itself increasing.

This does not sound all that terrifying, but recall that hyperinflation begins as the collapse of a paper bubble.  Everyone wakes up one morning realizing that inflation is a lot higher than they thought and will only get worse, so they all try to unload their paper at the same time for tangibles:  Land in productive use, gold, ammo, guns, non perishable food items, alcohol,  and suchlike, also overseas non tangible assets, paper assets regulated by solvent governments.

Only to discover that they cannot all unload their paper money at the same time.

If the rate of inflation is high and increasing, sooner or later, it suddenly starts to increase a lot faster.  Suppose inflation this year was seven percent, then next year it will nine percent, which is not imminent doom.  If people are not panicking today, they are unlikely to panic tomorrow. The end is not nigh.  But the end, nonetheless, is in sight.


Steyn nails it:

Friday, February 3rd, 2012

Our Sick State:

I don’t quite know what you’d call these rituals, but the term “private health-care system” doesn’t seem the most obvious fit. Indeed, as in so many other areas of American life — the Fannie-Freddied mortgage market, the six-figure college education — the main purpose of these dysfunctional labyrinths ever more disconnected from any genuinely free market seems to be to discredit the very concept of a “private” system and thus soften up the electorate for statist fixes.

In free, functioning societies, it ought to be easy to buy a bottle of pills. The fact that it isn’t is one reason why America has a real bad headache.

if you price your time, even if you price it at kind of minimum wage, the amount of time it takes, this is my problem, that everywhere you look now, you’re seeing a remorseless transfer of time, and time is money, of time and money from the productive class to the kind of bureaucratic sclerosis class.

In a previous post of mine, I observe that the US health care system is socialism without a central plan, and capitalism without markets or prices. Obama is not socializing it. He is making it more socialist than it was.