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XMFSinchiruna (26.54)

A Civilized Rebuttal to Charlie Munger



May 10, 2012 – Comments (11) | RELATED TICKERS: GG , BRK-B

 Warren Buffett's own father, Rep. Howard Buffett, recognized the monetary role of gold in empowering the masses to protect themselves from the effects of uncontrolled spending in Washington. Back when you were a young lad, in an essay titled Human Freedom Rests on Gold Redeemable Money, Buffett explained: "Far away from Congress is the real forgotten man, the taxpayer who foots the bill. He is in a different spot from the tax-eater or the business that makes millions from spending schemes. He cannot afford to spend his time trying to oppose Federal expenditures. He has to earn his own living and carry the burden of taxes as well." At the close of the piece, Buffett concluded: "There is no more important challenge facing us than this issue -- the restoration of your freedom to secure gold in exchange for the fruits of your labors." 

I wonder, Mr. Munger, was Warren Buffett's father uncivilized? Even as I take exception to your repeated assaults against the character of those who have seen fit to acquire some exposure to gold, I take pleasure in locating patches of common ground between us. I remain a big fan of your 2010 parable -- your cautionary tale in which a nation's addiction to casino gambling (derivatives) leaves foreigners, "particularly foreigners with savings to invest," deliberately avoiding that nation's currency and bonds.

At the time, I hailed your piece as "a timely attempt to instruct a nation in the basic foundations of fiscal solvency and the potential perils of our current trajectory." I consider it my duty to inform you, however, that any scenario involving a substantial decline in foreign demand for U.S. currency and bonds will necessarily invoke a major move into gold that would have wildly bullish implications for the metal's price. So if one were to grow wary of saving capital in U.S. dollars, but risks being labeled as uncivilized for looking instead to gold, I wonder... where would you have them go?


11 Comments – Post Your Own

#1) On May 11, 2012 at 11:34 AM, reinman60 (< 20) wrote:

Civilized people by synthetic credit derivatives. Ask JP Morgan how that worked out :)

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#2) On May 11, 2012 at 11:43 AM, XMFSinchiruna (26.54) wrote:

reinman... I just Tweeted that comment. That was classic.

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#3) On May 11, 2012 at 12:02 PM, catoismymotor (< 20) wrote:

I wonder, Mr. Munger, was Warren Buffett's father uncivilized?

I imagine Mr. Munger's comeback would be, "Don't ask me to pay for the sin's of Warren's father. That's his job."


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#4) On May 11, 2012 at 12:25 PM, CoreAndExplore (73.64) wrote:

I'm not sure why so many continue to oversimplify and distort what Munger said, but if you consider the context of his words, he was talking about gold as an investment, to say nothing of its value as a diversifier, hedging tool, or speculative compontent to a portfolio.  Gold is great in a lot of ways because of its low, and sometimes negative correllation to the equity markets (well, this relation oscillates), and as you point out, the strength of the U.S. dollar.  

 Still, putting money into gold because you expect others to be as fearful of massive devaluation as you are (currencies are valued relative to each other, so this is not as sure of a bet as everyone says, given many developed nations' massive debt loads) is not an investment, it's speculation.  In his rather brusque manner, that's all Munger is saying.

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#5) On May 11, 2012 at 1:23 PM, XMFSinchiruna (26.54) wrote:


With respect, "what he's saying" is precisely what he said:

"I don't have the slightest interest in gold. I like understanding what works and what doesn't in human systems. To me that's not optional; that's a moral obligation. If you're capable of understanding the world, you have a moral obligation to become rational. And I don't see how you become rational hoarding gold. Even if it works, you're a jerk."

"I think gold is a great thing to sew onto your garments if you're a Jewish family in Vienna in 1939, but civilized people don't buy gold, they invest in productive businesses."

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#6) On May 11, 2012 at 2:59 PM, CoreAndExplore (73.64) wrote:

Point taken.  While I personally agree with Munger's underlying (reading between the lines) assertion that fundamentally sound businesses trump non-productive metal as an "investment," I strongly disagree with the offensiveness of his remarks.  Calling people "jerks" and "uncivilized" for an interest in gold is just childish.  Like VP Joe Biden, he seems to be suffering from Foot-In-Mouth Disease.  Poor man.

Buffett certainly makes a more convincing case for the same argument Munger made, partly because he's not such a condescending prigg.

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#7) On May 11, 2012 at 5:21 PM, XMFSinchiruna (26.54) wrote:

Thanks for voicing your thoughts, and providing a positive counterpoint to the melee that broke out in the comments section beneath the article.

I happen not to fing Buffett's arguments any more convincing, but that too is a topic for another day. 

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#8) On May 11, 2012 at 9:34 PM, BubbaTX (< 20) wrote:

I wonder why WB purchased so much silver if it's a useless asset? Maybe because they thought it would go up? And as to gold, it is more a currency/store of value as in the treasuries he holds and knows he'll lose money on due to purchase price erosion due from inflation.

Think of gold like a life, health, auto, home insurance policy. It's financial insurance. Difference is when AU is purchased, the cost doesn't go out the window. You still own it to carress, warm up to and watch. My insurance payments disappear forever, except that one.

On 3rd February Warren Buffett's Berkshire Hathaway (BH) reported that it had purchased 129.7 million ounces of silver between July 1997 and January 1998. BH gave its reason for the purchases as "equilibrium between supply and demand was only likely to be established by a somewhat higher price".

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#9) On May 12, 2012 at 9:37 AM, Frankydontfailme (29.31) wrote:

#8 Hey BubbaTX. Buffet was buying silver in order to illegally  corner the market.

 I highly recommend reading this (great insight on the mechanics of cornering a market, even if you disagree with the premise): 

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#10) On May 14, 2012 at 6:15 PM, rfaramir (28.71) wrote:

Buffett's father's essay, written in 1948, so gold had been confiscated by FDR and was illegal for US citizens to hold, but foreigners could still exchange dollars for gold, so we were on a "gold exchange standard":

The US had a budget surplus at the time, but he correctly saw it as temporary. He predicted the political inability to pay off the debt. He predicted that the gold at Fort Knox which theoretically backed the US dollar at the time, would not do so, in reality, in time.

The annual US federal budget, in nominal dollars ('in real terms' would beg the question), is spent in 4 days by the current regime.

"When the people's right to restrain public spending by demanding gold coin was taken from them, the automatic flow of strength from the grass-roots to enforce economy in Washington was disconnected."

This is important. When the dollar was as good as gold, since it was convertible into it on demand, the People had traction on politicians. With a non-convertible dollar, "The Treasury is seemingly inexhaustible," from the viewpoint of politicians as moved by special interests, and so we spend ourselves into oblivion.

"Our finances will never be brought into order until Congress is compelled to do so. Making our money redeemable in gold will create this compulsion."

He even foresaw that our economic strength would stretchout the endgame of the disease of fiat currency. Longer than other nations' experiments with it, but not forever.

Great article!

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#11) On May 16, 2012 at 1:15 PM, Sturmudgeon (< 20) wrote:

Thanks, Fools, for the comments... providing more education for this 'fool' and aged but novice investor attempting to shield against the total loss of his many years of low pay/persistent savings/investments at this 3rd. quarter-of-a-century life journey..

I really appreciate these shared articles and comments!

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