CHAPTER 22: MESSAGE FROM OMAHA
1. The paper loss on silver, calculated just for the 111.2 million ounces held on December 31, 1997, is estimated as follows: The average cost of $5.05 per ounce minus the average cash price of $4.17 in the first week of September gives a loss of 88¢ per ounce, producing a mark-to-market loss of $97.85 million on 111.2 million ounces.
2. The daily standard deviation of returns on silver during the previous 90 calendar days was .82% and for gold it was .69%. The four-cent increase in silver was an insignificant increase of .96%, while gold’s 2.98% jump was clearly significant. I use the London bullion market prices because the New York markets were disrupted by the attack. The gold price reported here is the morning fixing from September 12 versus the morning fixing for September 11, which is comparable to the timing of the silver fix. The London afternoon fixing on September 11 occurred after the attacks and jumped to $287, which represents an almost 6% increase. The afternoon fix on September 12 was $279, in line with the morning fix on September 12. There are allegations that the London fixing has been subject to manipulation by the fixing members. See Andrew Caminschi, “Too Precious to Fix: The London Precious Metals Fixings and Their Interactions with Spot and Futures Markets,” (PhD diss., University of Western Australia, 2016).
3. These are from the respective cash series in the CRB database.
4. The data on silver are from CPM Group, The CPM Silver Yearbook 2016 (New York, 2016), pp. 6–7. The quote is from Tilson, “2006 Berkshire Hathaway meeting notes.”
5. The quote is from Tilson, “2006 Berkshire Hathaway meeting notes.”
6. Berkshire Hathaway 1988 Chairman’s Letter.
7. This and the remaining quotes in this paragraph are from “Gold Sleeps While Silver Rocks,” New York Times, May 29, 2005, p. B8.
8. According to the CRB database the high in cash silver was $14.15, and it closed at $13.97.
9. The cash price of silver on October 1, 1979, was $18.00 compared with $8.94 on August 1, 1979. The cash price on January 2, 1980, was $37.75 compared with $16.32 on November 1, 1979.
10. No recordings or videotapes were permitted at Berkshire Hathaway annual meetings at that time, but a number of attendees took notes and published them. This discussion of the 2006 annual meeting is based on the following sources, with specific quotes noted separately. 1) Jason Zweig, “Buffett: Real Estate Slowdown Ahead,” May 8, 2006, CNN Money, available at http://money.cnn.com/2006/05/05/news/newsmakers/buffett_050606/index.htm?section=money_latest; 2) J.V. Bruni & Co., “The 2006 Berkshire Hathaway Annual Meeting: Top 20 Questions,” available at http://www.jvbruni.com/Berkshire2006annualmeeting.pdf; 3) Whitney Tilson, “2006 Berkshire Hathaway meeting notes,” May 6, 2006, at http://www.designs.valueinvestorinsight.com/bonus/bonuscontent/docs/Tilson_2006_BRK_Meeting_Notes.pdf; 4) “Notes from Berkshire Hathaway Annual Meeting,” available at https://www.gurufocus.com/news/1569.
11. See “Notes from Berkshire Hathaway Annual Meeting.”
12. See Zweig, “Buffett.”
13. This quote and the remaining in this paragraph are from Tilson, “2006 Berkshire Hathaway meeting notes.”
14. Ibid.
15. See Adam Doolittle, “Analyzing Warren Buffett’s Investment in Silver,” available at http://www.silvermonthly.com/analyzing-warren-buffetts-investment-in-silver/.
16. See CPM Group, CPM Silver Yearbook 2016, pp. 6–7, showing the excess of fabrication demand over mine plus secondary supply equal to 67 million ounces in 2005 compared with an excess of 175 million ounces in 1997.
17. The 111.2 million ounces purchased in “mid-1997” cost $5.05 per ounce or a total of $561 million. Selling those 111.2 ounces in “mid-2005” at $7.50 per ounce produced $834 million. The annual compound growth over 8 years is 5.08%. Ten-year Treasury bonds yielded an average of 6.075% during the last 6 months of 1997 (see Economic Report of the President, Transmitted to the Congress February 1998, together with the Annual Report of the Council of Economic Advisers (Washington, DC: Government Printing Office, 1998), p. 367.
18. This quote and the next are from Tilson, “2006 Berkshire Hathaway meeting notes,”
19. See CPM Group, CPM Silver Yearbook 2016, pp. 6–7, showing the excess of fabrication demand over mine plus secondary supply equal to 67 million ounces in 2005 compared with an excess supply of 67.5 million ounces in 2008.
20. Cash silver in the CRB database closed at $13.97 on May 5, 2006, versus $10.87 on September 12, 2008.
21. In the CRB database cash gold was $682.57 on May 5, 2006, versus $766.19 on September 12, 2008. Copper was $3.597 per pound on May 5, 2006 and $3.209 on September 12, 2008.
22. The start date I used is September 12, 2008, the Friday before the Lehman bankruptcy and the end date is March 9, 2009, the low for the S&P500. The S&P index was 1251.7 on September 12, 2008, and was 676.5 on March 9, 2009, for a drop of 45.9%.
23. The price data for GE are from Yahoo! Finance.
24. Anonymous, of course.
25. The cash price of West Texas Intermediate crude oil was $101.18 on September 12, 2008, and $47.07 on March 9, 2009. The cash copper price was $3.209 on September 12, 2008, and $1.6295 on March 9, 2009. All data are from the CRB cash series.
26. Cash gold was $766.19 on September 12, 2008, and $922.78 on March 9, 2009, an increase of 20%. Cash silver was $10.87 on September 12, 2008, and $13.01 on March 9, 2009, an increase of 19.69%.
27. The precious metals proved their safe haven status during the week of Lehman’s bankruptcy, when three-quarters of the increase occurred. Silver closed at $12.61 on Friday, September 19, 2008, an increase of 16% over the previous Friday, and gold closed at $873.44, an increase of 14%. Both of those returns are statistically significant using the standard deviation of returns calculated over the previous 90 calendar days ending September 12, 2008. Gold had a daily standard deviation of returns equal to 1.52%, and silver had a daily standard deviation of returns equal to 2.68%.
28. The correlation coefficient between daily returns on silver and gold is .71 compared with .136 between silver and copper, using daily data from the London Bullion Market Association between January 1987 and December 2014.
29. See Alan Blinder, After the Music Stopped (New York: Penguin Press, 2013), for a nice discussion of the government rescue programs.
30. On December 31, 2009, the S&P500 closed at 1115.10. The drop from 1251.7 on the Friday before the Lehman bankruptcy was now 10.9% compared with the low of 46% on March 9, 2009. For a nice discussion of the European debt crisis see Philip R. Lane, “The European Sovereign Debt Crisis,” Journal of Economic Perspectives 26, no. 3 (2012): pp. 49–68.
31. See the cash price series of the CRB database for gold and for silver in the next sentence.
32. The peak in silver was $48.42 on April 28, 2011. The $4.2 billion profit is calculated as follows: The profit per ounce was $42.92 less $5.05 equals $37.87, multiplied by 111.2 million ounces, equals $4,203,570,000.
33. The production of the coins was authorized by Public Law 99–61 of July 9, 1985, available at https://www.gpo.gov/fdsys/pkg/STATUTE-99/pdf/STATUTE-99-Pg113.pdf.
34. The coin production data from 1986 through 2015 are available at http://silvereagleguide.com/mintages/. The 2016 number comes from “American Eagle silver bullion coins struck at three facilities in FY 2016” at http://www.coinworld.com/news/precious-metals/2017/02/silver-eagle-production-spread-between-three-mints.all.html#.
35. See CPM Group, CPM Silver Yearbook 2016, pp. 6–7.
36. “Utah Law Makes Coins Worth Their Weight in Gold (or Silver),” New York Times, May 30, 2011, p. A1. Also see the draft of the legislation at https://le.utah.gov/~2011/bills/hbillint/hb0317s01.htm#. Ron Paul introduced H.R. 4248 in 2009, a bill “To repeal the legal tender laws, to prohibit taxation on certain coins and bullion, and to repeal superfluous sections related to coinage.” See https://www.ronpaul.com/2009-12-10/break-the-monopoly-ron-paul-introduces-hr-4248-the-free-competition-in-currency-act.
/> CHAPTER 23: THE PAST INFORMS THE FUTURE
1. See “Nelson Bunker Hunt, Texas Tycoon, Dies at 88,” New York Times, October 22, 2014, p. A24: “Like his siblings, Bunker still had millions in trusts set up by his father, and Forbes reported in 2001 that, while he had long ago dropped off the list of the richest Americans, he had recently bought eighty racehorses for $2.5 million, and that a filly called Hattiesburg, which he picked up for $20,000, had won $357,000.”
2. “Hunt Becomes Billionaire on Bakken Oil after Bankruptcy,” March 28, 2013, Bloomberg News at https://www.bloomberg.com/news/articles/2013-03-28/hunt-becomes-billionaire-on-bakken-oil-after-bankruptcy.
3. For additional detail see Paul Wachtel, “Central Bank Independence: More Myth than Reality” (paper, Colloquium on Money, Debt and Sovereignty, University de Picardie Jules Verne, Amiens, France, December 11–12, 2017).
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* * *
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