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Warren Buffet on Gold

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  • Warren Buffet on Gold

    Hi Guys

    How to make a quick $1.8b.

    According to Warren Buffett’s Berkshire Hathaway annual report, which is hot off the presses, the world’s most successful investor made $1.8 billion on his foreign exchange bet against the dollar last year.

    “Before March 2002, neither Berkshire nor I had ever traded currencies,” Buffett writes, “but the evidence grows that our trade policies will put unremitting pressure on the dollar for many years to come - so since 2002 we’ve heeded that warning in setting our investment course.”

    “Without policy changes,” he writes, “currency markets could even become disorderly and generate spillover effects, but political and financial. No one knows whether these problems will materialize. But such a scenario is a far-from-remote possibility that policymakers should be considering now. Their bent, however, is to lean toward not-so-benign neglect.”

    The US now must take in loans at the amount of $1.8 billion a day from foreign investors to pay its trade and government deficits. This is a 20% increase from a year ago.

    “A country that is now aspiring to an ‘Ownership Society’ will not find happiness in - and I’ll use hyperbole here for emphasis - a ‘Sharecropper’s Society.’ But that’s precisely where our trade policies, supported by Republicans and Democrats alike, are taking us,” Buffett warns.

    Buffett also believes that the path the Treasury Department and Greenspan have taken us will prove to be futile:

    “Policymakers continue to hope for a ‘soft landing,’ meanwhile counseling other countries to stimulate(read ‘inflate’) their economies and Americans to save more. In my view these admonitions miss the mark: There are deep-rooted structural problems that will cause America to continue to run a huge current-account deficit unless trade policies either change materially or the dollar declines by a degree that could prove unsettling to financial markets.”

    Last month, Alan Greenspan - for all intents and purposes - called a bottom in the dollar. He said that the dollar had declined so much that the current-account deficit will begin to reverse. Just minutes after these words left his mouth, CNBC ran the headline “Dollar Bottom” at the bottom of its screen.

    Things are not fine. The dollar is going to continue to decline.

    Yes, it would be nice to think that Alan Greenspan and Bush’s Treasury Secretary would have the courage to reverse the disastrous economic policies of the past 10 years; the policies that have put our country in its current weak state - but that seems like a distant hope.

    In the end, as investors we have two choices - align ourselves with the trend and make a fortune or be destroyed by it.

    Last year, Warren Buffett made over a billion dollars by betting against the dollar.

    This year, he will make more. And you can too.

    Things are heating up in the gold market. Gold bottomed just three weeks ago. Gold stocks are now consolidating, moving sideways - fueling up to launch the next wave of the gold bull market. I told you back before the bottom that once it came I expected the gold stocks to go sideways for 6-12 weeks before rallying to their highs.

    Monday was interesting because on the open the dollar rose and so did gold. Gold is now starting to ignore green days in the dollar because the short-term bounce in the dollar is over. Up days for the greenback have become nothing but noise.

    Remember how back in November when gold was near its top, the dollar was still dropping and yet gold stopped going up? Gold stopped rising because the gold market knew that the dollar drop was near an end.

    Now the opposite is happening. Gold is now going up at times even when the dollar does because the gold market now knows that any rise in the dollar, at this point, won’t last.

    The gold market is starting to take a life of its own – and that means a little more consolidation – to recharge its batteries.

    The action in Gold and the recent news for the dollar has me now convinced that this consolidation phase is going to be much shorter than I imagined.

    It is now time to plan for the next gold rally and to begin to position yourself. The profits that are going to be made on Gold this year are going to be incredible.

    To find out what gold stocks Mike Swanson holds and plans on buying subscribe to his free Weekly Gold Report at http://wallstreetwindow.com/weeklygold.htm

    "There's one way to find out if a man is honest-ask him. If he says 'yes,' you know he is a crook." Groucho Marx

  • #2
    Hi Muppet

    With the Value of the NZ dollar so high against the Greenback and Pound, highest in 22 years and 7 years respectively, there are worse ideas than buying US$ or GBP£ now for a gain when the dollar drops against these two currencies in the future.

    See the following article.




    • #3
      Oh I remember the good old days (about 15 years ago or so) when it was 42p to the $1.00
      You can find me at: Energise Web Design


      • #4
        Originally posted by LondonKiwi
        there are worse ideas than buying US$ or GBP£ now for a gain when the dollar drops against these two currencies in the future.
        Anyone had any experience with buying foreign currency and selling for gains? Do you pay tax on the gains? Can you keep the, lets say, US$'s in a NZ bank a/c? Whats the best way to do it?


        • #5
          I have a Sterling FCA (Foreign Currency Account) with a New Zealand Bank. You can set up these (offshore) accounts with most Banks in whatever main currency you want. Then it is just a matter of buying the currency with your New Zealand dollars and transferring these into your FCA. The Banks don't charge for the transaction they just make their money on the difference on their sell and buy rates.

          The money in the FCA will earn interest at the standard rate of the country that currency is in. (i.e.. for my Sterling account it is at the standard British interest rate amount).

          The whole process of transferring can be done over the telephone, I did such a transaction yesterday.

          When you finally transfer the amount (with gain) back into your New Zealand bank account you will be susceptible to the standard interest rates and RWT that you receive on your accounts in NZ.

          Hope this helps.




          • #6
            cheers LondonKiwi that was a great help!


            • #7
              Hmmm what would be the best bet though, US$ or GBP£? Everything I'm reading is saying that the US$ will continue to fall this year...whats the feeling of what the pound will do?


              • #8
                Why not spread the risk and buy both. I know the trends for the GBP£ more as I look daily to check the rates, being paid in pounds I need to convert into NZ$ from time to time.

                However if you look at the trends for the exchange rates over time you will see that currency, like property is very cyclical in nature.

                At the moment the NZ$ is at record highs against both these currencies and if you follow the cycle it will drop at some stage, so its a case of when not if.

                I doubt the NZ government will let the $ get too out of hand, as there will be no exporters left in NZ. if the dollar continues to climb. Read what you can from recent comments from Bollard (re potential further interest rate rises) and Cullen (re exporters feeling the pinch) and then make up your mind when you think is the best time to buy.




                • #9
                  Hi LondonKiwi,

                  I doubt the NZ government will let the $ get too out of hand, as there will be no exporters left in NZ. if the dollar continues to climb.
                  I beg to differ. The only thing the government can do is talk down the exchange rate, which Michael Cullen tried but failed last year. The Reserve Bank, which is independent of the government, will not and cannot interfere with the exchange rate because its primary focus is its mandate to keep inflation in the 1-3% range, and the interest hike few days ago despite the high dollor shows RB's true colour; even if it wants to, the reserve is so tiny that it will be overshadowed by hedge funds.

                  The good news is: if you look at the US$/NZ$ chart for the last 20 years, the NZ$ is at the very top now and will fall very soon when the reality of dangerous current account deficit and economy slowdown set in. It was low at 0.4250 in 1984/85, high at 0.7275 in 1988, low at 0.5015 in 1992/93, high at 0.7176 in 1996/97, low at 0.3895 in 2000/2001, and then high at 0.73 currently. Now maybe you can work out the length of each cycle and make your prediction.


                  • #10
                    Hi Fudosan

                    Yes, but the American has never been weaker, soooo the NZ dollar may go higher yet.

                    Gold is rapidly approaching US$450 per ounce.

                    "There's one way to find out if a man is honest-ask him. If he says 'yes,' you know he is a crook." Groucho Marx


                    • #11
                      The govt can actually do lots of things, like reducing income tax after the budget surplus (which Cullen has said he won't do) This would leave people with more disposable income, would increase spending and therefore raising inflation (and no doubt interest rates again)

                      Sometimes these measures are more indirect than direct policies and that was what I was referring to,




                      • #12
                        HI London Kiwi

                        I'm in the same situation as you, I been working in the UK for 8 months now, thusfar 0 money has gone home because of the exchange rate. But I do think its going to swing around eventually. Like you said it can't go on forever as exporters will get killed. But dang its practically at 2.5 now..

                        The dillema is that because I can't find any thing good in the short term to invest in (I'm still looking), the best thing I an do is send money home to pay of loans on investment properties, but I don't wanna do that as FX rate is so low. But then the money sits here in an ING account getting 4% while my loans back home do 8%...

                        end rant.