Cracking the Code of Wealth

Financial Mastery In The Digital Age

Master Investor
March 30, 2024

Summary:

Professional investors would like you not to know their wealth secrets
It's time to make wise investments because inflation is rising.
Remember that historically, gold rises in value as the currency falls.

Invest in assets that are not governed by the government or the Federal Reserve Bank to increase our wealth.

Acts, as they say, speak louder than words.

Does it really matter if Warren Buffett purchased gold or gold mines for $560 million? What Warren Buffett sold to pay for the gold mines is what matters most.

All of Warren Buffett's airline equities and a sizable portion of his banking stocks, such as those of JPMorgan and Goldman Sachs, were liquidated. What does that mean to the Master Investor community that Warren Buffett is dumping airline stocks and banking stocks to buy huge stakes in the Barrick Gold company?

What did Warren Buffett's actions indicate to us?

It is more crucial to observe Warren Buffett's actions than what people are talking about them.

Recall that Warren Buffett was the person who once said:

“In Africa, or any other place, gold is extracted from the earth. After that, we melt it down, dig a new pit, bury it once more, and hire guards to stand watch over it. It serves no purpose. From Mars, anyone observing would be scratching their head.”

The fact that the same man sold many equities to purchase gold is what makes this intriguing and worthy of discussion. Investors could see that it was a signal, but what was it signaling? Was a wealth secret exposed right in front of our eyes?

Furthermore, the banks are unable to make up the shortfall since the Federal Reserve Bank is preventing them from raising interest rates.

Wealth Secret #1: Dumping Banks

We paid close attention to Warren's bank sales. This is presumably because Warren anticipated that despite rising inflation, the Federal Reserve Bank would prohibit interest rate increases. This is extremely harmful to banks since the money they receive back for their loans is paid back in dollars that are worth less.

To put it simply, the dollar buys less as inflation rises, which means that the dollar's purchasing power has declined. Thus, the banks are in a bad situation when they are paid back with these "weaker and cheaper" dollars. They received a lower dollar in return for their strong dollar loan. Furthermore, the banks are unable to make up the shortfall since the Federal Reserve Bank is preventing them from raising interest rates.

Warren thus sold his bank stock holdings, which are vulnerable to inflation, and bought gold mining equities, which appreciate in value over time. We must be aware that gold acts as an inflation hedge in order to fully comprehend this. Historically, gold has increased in value when the dollar has declined.

The worst part is this. This is not an issue with COVID-19. Since 2000, the US has accumulated 26 trillion dollars in debt.

Although not "Covid-19" fresh, this is rather new. The United States accrued around $5 trillion in debt between 1776 and 2000. However, the U.S. government has added to its debt by more than $20 trillion during the past 20 years.

Imagine that our excessive expenditure is the only cause of our debt. Debt is exactly that. Debt is transferring consumption from the future to the here and now. Stated differently, our nation has been overindulging in consumerism for several decades. The only way to reach an equilibrium position eventually is to either under consume by the same amount or more than we over consume.

How can an administration escape that predicament? Although it's unlikely, they could tighten their belts and drastically reduce their expenditures. If a politician tried it, they would not be able to remain in office. People would eject them from society.

Therefore, the government must inflate the debt away if expenditure isn't lowered. In essence, they would use less expensive money to repay the obligation.

However, there's more justification for selling bank stocks. An increasing number of people will find themselves unable to repay their bank loans as the economy collapses. We're going to leave the bank holding the bag.

Wealth Secret #2: Dumping Airlines

Buffett sold off his airline stocks because he was afraid that the government would take excessive control. The amount of passengers that may be carried on a flight was being severely restricted by the government because to Covid-19 limitations.

When Buffett noticed that fewer than 25% of flights were filled, the pressure on airlines to turn a profit on their already slim margins increased. Per flight, they don't make much money. Out of hundreds of seats, just three or four yield a profit. Airlines need volume flights if they are going to make any money.

Airlines are facing a serious issue as a result of an increase in the number of these flights that are 75 percent empty. Therefore, it's possible that Buffett realized the long-term issues as governments grew more powerful and inclined to maintain lockdowns.

The Secret to the Government's Wealth: Print more currency

The government will be forced to raise the national debt because it has no other option given the state of the economy and the agony the banks are experiencing. It also lacks a legal means of repaying the debt. There are fewer taxpayers when there are fewer working people. There is a terrible issue when there are fewer taxpayers and more debt. The only apparent solution available to the government is to print more money. Massive inflation results from this "solution" of printing money out of thin air.

The government's "solution" causes hyperinflation, which in turn causes a complete collapse of the currency, rendering the dollar worthless. Actually, there is just one "good" answer. The response is that we must produce.

Manufacturing is necessary. War or extreme inflation are the options. And out of those three alternatives, the government will select inflation if past performance is any guide.

Wealth Secret

What is feasible for the common person? Let us reexamine the past. Using the early 1970s as an example, we can observe a shift away from financial assets and toward tangible assets such as gold and silver. Consider the 1972–1974 stock market crash. Next, consider the massive commodity boom of the 1970s. Buffett is probably thinking back on the things he learnt in those days.

Although there are no guarantees when it comes to gold and silver, the transition from equities and financial assets to gold and silver seems to be the most likely course of events if we study the trends and look at the probability.

Let's expand that list to include Bitcoin and other cryptocurrencies. But when everything is taken into account, such as the quantity of debt held by the government, the deficit spending on stimulus packages, infrastructure projects, and other items currently in the news, wealth secrets from astute investors include purchasing assets that are not under the Federal Reserve Bank's or the government's jurisdiction.

What is meant by that?

There is always more than one aspect to something in life. Buffett's 96-year-old colleague Charlie Munger states, "I wouldn't hang out with a bunch of gold bugs."

The 90-year-old Buffett also declared that gold "has no utility." Naturally, both have now gained $560 million in gold. Furthermore, veteran financier Paul Tudor Jones recently declared his support for Bitcoin. The thing is, even the elderly are having second thoughts. Observe their behavior rather than paying attention to what they say.

In addition to purchasing gold, they are also making investments in gold mining. Why then is that different? Because gold miners benefit greatly from increases in gold prices.

Let's take an example where the price of gold increases by 100% to $4,000.

In such case, the gold miners would probably see a 400% increase rather than a 100% one. Gold miners have greater negotiating power.

Words are not as powerful as actions.

As we previously noted, COVID-19 caused a great deal of dissatisfaction in the aviation sector. The instability and volatility in the developed world are good news for gold, despite the fact that this may appear paradoxical.

This also applies to hyper-inflation, when gold likewise exhibits exceptional performance. This is what happens when we start to lose faith in the US dollar and the economy as a whole.

Owning tangible assets is, once more, the answer. Think about commodities. They offer incredibly fantastic value and are greatly underappreciated.

Remember also commodities like agriculture, oil, copper, and uranium; additionally, gold and silver should not be disregarded because they have maintained their value for more than 5,000 years. The fact that so many people are adopting bitcoin globally, even in China and Venezuela, where people have lost faith in their financial systems, makes it really interesting. The amazing thing about Bitcoin is that there is a limited supply of 21 million units, and some people predict that this quantity will decrease over time due to frequent losses. This is fantastic since an asset with a fixed quantity cannot experience inflation.

Being alive right now is the most exciting time ever. Everywhere we turn, wealth transfers are taking place. cryptocurrency, commodities, stocks, and more. In the past, wealth was transferred from the lower and middle classes to the upper classes, but if we are brave and intelligent, we may be the beneficiary of this transfer.

Recall that we should pay more attention to the prominent players' deeds than their words.