The Gold Ghost Of Warren Buffett
April 11, 2012
By Stewart Thomson
If Warren Buffett was a member of the gold community, would he book losses on his gold stocks now and exit the market?
I’ll suggest that he would be a buyer, not a bailer, and he would be anticipating an enormous rally.
Marking some of the OTC derivatives debt to model has created the illusion that the size of this debt has shrunk. I don’t think much of the OTC derivatives problem has really been solved, and the story of the OTCDs is really now the story of the invisible man.
Or is the story better termed the invisible bomb?
After buying American government debt by the boatload, and then bailing on a lot of it, the Chinese government is now apparently sinking its teeth into Japanese government debt. The definition of insanity is to repeat the same behaviour in a similar situation and expect a different outcome. Japan is arguably in worse shape than America, and I doubt the outcome for China will be any different than it was with their American bond-buying expedition. It will fail.
The global mountain of debt that created an enormous bear market in all paper currencies has not shrunk while GDX has sold off. It has grown. Unfortunately, drawdowns in the price of most gold stocks have caused irrational loss-booking by most investors.
I don’t believe it’s possible to approach markets in the manner they were approached by most investors in the late 1990s. I think it’s a myth that you can engage in sector rotation throughout your life and end up in a profitable position. That approach failed then, and it will fail now.