Bill Bonner

We got the news yesterday. Gold went over $1,900. This morning we find it soared $39 yesterday.

Wow!

Has making money ever been easier? We bought gold at around $300 at the turn of the century. Now, it’s 6 times as much. And if Ben Bernanke announces another money-printing spree, gold will probably close the week over $2,000.

Getting rich is a piece of cake.

All we had to do was to sit tight…and ignore all the people who claimed that gold was an overpriced bubble. Or that it was worthless. Or that we were idiots.

People like Warren Buffett, for example. Buffett says that buying gold is a waste of time. He prefers stocks. His Berkshire Hathaway produced a return of 76% from 2000 to 2010. Not bad at all.

But nothing like the 500%+ from gold. And BRK went up and down; it had good years and bad years. Gold only went up; only good years.

Probably the best thing about gold is that you didn’t have to go to Omaha to attend Warren’s annual meeting.

We were very sympathetic to Buffett for a very long time. He rarely said anything we didn’t agree with. But now he seems to misunderstand completely what is going on. He is telling investors to buy stocks now, because nothing beats quality US stocks over the long run.

He also tells investors to avoid gold, because it doesn’t produce anything. It doesn’t make candy or sell insurance, for example.

He’s telling everyone that the US should raise taxes on the rich. And he says US bonds should be up-graded, not downgraded. There just aren’t enough A’s in the alphabet to describe the quality of US debt, says the Sage of the Plains.

Wrong, wrong, wrong.

He’s wrong about US stocks. Yes, if you buy them when they are cheap…and if the US is in a boom period…you can make some money. But how about now? The US economy is in a period of correction…and debt de-leveraging. US stocks probably won’t go up for years.

What’s more, US stocks still aren’t cheap. They’ll have to go down another 30% to 50% before they are bargains. Most likely, they’ll get sawed in half before the bottom comes.

He’s wrong about taxes on the rich too. Raise the taxes on the rich all you want. There just aren’t enough rich people to make much of a difference. Allowing people to think they can get out of the debt trap just by soaking the rich is a dangerous illusion. You might want to soak the rich just for the fun of it, but it’s not a serious way to solve the debt problem.

As for gold, Buffett has been wrong about that too. Gold is not something you buy to make money. It’s something you buy so you won’t lose money. You buy it when you see the feds’ crackpot financial system coming apart. That’s what’s been happening for the last 10 years. The fixes don’t stay fixed. And gold goes higher.

But what now?

Hmm… Now, it’s a little harder for us gold bugs. We want to say “buy gold,” but we know that the risk-free profits have already been made. Now, it’s more of a gamble.

On the one hand, the feds are ready, willing and able to print more money – which is sure to send gold much, much higher.

On the other hand, this correction has much further to go too. And a correction is fundamentally deflationary. Cash – even dollar cash – should become more valuable. Do people need gold when their government-issue currency is becoming stronger? Well…it depends…

Already, a dollar will buy nearly twice as much house, in some areas, as it did 4 years ago.

It will buy more stocks too – US stocks are down about 15% from the peak, equivalent to a 15% price reduction.

Gasoline? Not yet. But the price of a barrel of oil has dropped nearly $20 over the last 4 weeks. If this keeps up, it will be cheaper to fill your tank too.

Commodities have taken a big hit too – so look for lower food prices.

And what about gadgets from China? They’ll go down too…as fewer and fewer people have the money to buy them.

And yet, the price of gold is still going up even faster than dollars…zooming up…soaring up…blasting up…

Has the long-awaited Third Stage of this bull market in gold finally arrived? Maybe…stay tuned.

Bill Bonner
for The Daily Reckoning

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success in numerous industries. His unique writing style, philanthropic undertakings and preservationist activities have been recognized by some of America's most respected authorities. With his friend and colleague Addison Wiggin, he co-founded The Daily Reckoning in 1999, and together they co-wrote the New York Times best-selling books Financial Reckoning Day and Empire of Debt. His other works include Mobs, Messiahs and Markets (with Lila Rajiva), Dice Have No Memory, and most recently, Hormegeddon: How Too Much of a Good Thing Leads to Disaster. His most recent project is The Bill Bonner Letter.

  • http://www.investorsfriend.com The Investors’sFriend

    How Pathetic Bill, you attack Buffett for some quote he never ever made. Show me where Buffett said waste of time in those exact words you used.

    I bet you can’t. Bill you are a most lazy writer. If you want to attack Buffett take the time to dig out exact quotes.

    Buffett has NEVER EVER worked to push up the Berkshire stock price, he has worked to bring up its book value.

    It’s not Buffett’s fault Berkshire was overvalued in 2000.

    Just don’t be so damn lazy!

    Bill, you made money FROM investors, selling your advice. Buffett makes money FOR his partners (those who own Berkshire shares for the long term).

    Last, I checked Buffett was a heck of a lot richer than you are and was richer at your age.

  • TheInvestorsBestFriend

    Shawn, take a chill pill. Relax.

  • Boris

    Your gold hasn’t created any wealth, Bill, so you’re in about the same place wealth-wise as you were when you began buying it, minus storage charges and lost interest, of course.

    On the other hand, the poor schmucks who have a death grip on paper currency have lost considerable wealth over the last decade.

    When the gold bubble pops (and it will) you may come out on top if you’re quick on your feet, whereas WB’s companies will continue to create wealth for him as long as he lives.

  • Bboris

    Wallet is considered a landmark in western monetary hemisphere. He is still the most wealthy around. When he coughs or sneezes, the world’s indices could either tank or spriral up.
    Since there is no better unit in english after trillion, why not adopt 1 warren as an imperial unit of measurement. Say, 1 warren equals 1000 trillions greenback.

  • Bruce Walker

    Agree with Bonner all the way; –Buffet has lost some credibilty over the past few years. Maybe because some of the bailout money has found its way into his pockets, whether Buffet realizes it or not, the money has corrupted him. Maybe not as corrupt as a bond rating agency executive, but in any case he has drunk the kool aid with the rest of them, and his perspective now shows it. Either that, or its early symptoms of alzheimers onset. And no, I’m not trying to be funny, -quite serious.

  • http://BobBlinker.org/ Bob Blinker

    Shawn, let’s do a deal to be richer than Bill Bonner.

    Sincerely,
    -BB

  • Paul Revere

    Warren Buffet is busy making happy with Obama bin laden – a pair of complete idiots. They should join their buddies Bernanke and Geithner at the bottom of the deepest pit of hell.

  • Atticus

    Buffett is a shill now.

    He’s becoming George Soros = also fantastically rich but I wouldn’t shake Soros’ hand or allow him in my home.

    They’re in a different money-making game now – the most lucrative of all…

    They coordinate with policy makers and politicians to imprecate the public with evil, wealth (and therefore freedom)-destroying policies for their own enrichment.

  • stev

    Well Bill you can look at your one moment in the sun and pat yourself on the back but you don’t detail all the other blowout calls you have made. I wonder why?
    Your no spring chicken so why not share the rest of your investing track record?
    Maybe you haven’t have 60 years of very good calls and made a fortune as Buffett has. So if you want to compare please be honest and lay it all on the line.
    There is a saying that the sun shines on the dogs a** every once in a while.
    Gold is a bubble .
    Look at 80′s gold prices . Look at stock market , real estate or any other bubble.
    When and why it pops remains to be seen.
    I can assure you that you will lose hard when the bubble pops.

  • Bill B Bonner

    Shawn,

    Send me one of your autographed Warren Buffett photos from your collection and I’ll send you an autographed Jimmy Buffett photo.

  • Model T

    says Boris: “WB’s companies will continue to create wealth as long as he lives”

    Any guesses?

    And when he leaves, there won’t be anybody waiting in the wings to maintain the value of Berkshire. Remember Fidelity Magellan?

  • Scott Walker being b***h slapped by a DMV clerk

    CONFERENCE ROOM, BANK OF AMERICA HEADQUARTERS

    Warren Buffett – I think the rich should pay much higher taxes.

    POTUS – Thanks for the plug, Buff, here’s some taxpayer dough to bail out your new bank.

  • stackerman

    Hey all of you fools thinking gold is in a bubble should first off, sell me all your gold, and second, read a friggin’ book! I mean, since you are so in love with paper!!!!!!!

  • neutral

    @Investor’s Friend: Bonner didn’t use a direct quote at any time in this article. He was paraphrasing public information, which is available on Bloomberg or Edgar, if you want to find the exact words Buffet uses to describe his position on gold. I don’t see how personal, nominal, wealth has any bearing in this conversation. Buffet is indeed a master fundamental investor, but even he has said that it was more the timing of his entry into the world of equities that made him his fortune, rather than any special abilities that he possessed.

    @stev: There are some pretty stinging accusations in your post. Since I am new to the Daily Reckoning, could you please list some of the “blowout” calls that you are referring to? I would be extremely grateful for any factual information you could provide on Agora’s financial track record, since it could help me decide to purchase a subscription to its services in the future.

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