‘We count on the AmericanTailwind and, though it has been becalmed from time to time, its force has always returned. I have been investing for 80 years – more than one-third of our country’s lifetime. Despite our citizens’ penchant – almost enthusiasm – for self-criticism and self-doubt, I have yet to see a time when it made sense to make a long-term bet against America. And I doubt very much that any reader of this letter will have a different experience in the future.’
Buffett has been right for a very long time. Or has he been merely lucky?
And hasn’t the baby boomer generation been exceptionally lucky, too…growing up when the US was on the top of its game…accumulating wealth as the economy grew and the Fed pushed up prices?
But lo! Has their luck finally run out?
Meanwhile, back on the ranch…
On the weekend, we set to work…reviewing the local situation:
Source: Bill Bonner. Bonner’s Gulch, in bloom.
All was good. The alfalfa was in bloom. The onions were fat. The water was running strong. And the people seemed in good spirits.
When we began, 15 years ago, we knew nothing about farming in Argentina. Nothing about raising cattle. Nothing about the people or the land. A prudent person would have said:
‘You don’t know what you’re doing; you’re going to lose money.’
That person would’ve been right. We’ve lost money every year. But we’ve gradually learned the old farmers’ secret to making a small fortune: start with a large one.
Our guess is that no one really makes money in the Calchaqui Valley. Everything is too remote…too expensive…too dry…too windy…the ground is too salty. And the river is too unpredictable.
But our losses are narrowing. We make thousands of rolls of hay each year. Now, the cattle have something to eat in the dry winter months. Then, if we manage them correctly, feed them well, and the price of beef holds up…we come close to breakeven.
One thing we’ve learned about farming in general — it’s a low-margin business. The successful farmer is like the successful tennis player. He wins by not losing. He doesn’t have to invent a new baler or plough backwards to try to fool the crows; he just doesn’t make mistakes. He doesn’t waste fuel. He doesn’t procrastinate; he plants and harvests at the right time. And he watches his costs carefully; no unnecessary labour…no unnecessary machinery repairs.
A tenuous connection
‘El ojo de dueño engorda la vaca.’ (The eye of the owner fattens the cattle.)
As an absentee owner — as well as an agricultural ignoramus — it is almost impossible for us to keep any margin at all. Our ojos are on other things…such as the Fed’s interest rate policies.
Our ranch has the additional inconvenience of straddling the Rio Calchaqui.
‘We would have already cut the alfalfa’, said Antonio, the foreman, when asked how come there was so much of it still in the field, ‘but we couldn’t get the baler across the river. We have to wait for the water to go down’.
The high water is a delight to us; it makes us feel isolated…romantic…protected from the world — like the only inhabitants of a desert island. We can still come and go…but only via the footbridge:
Source: Bill Bonner. Our connection to the outside world.
Source: Mariah Bonner. Bill and Elizabeth, off to survey the scene.
…or on horseback.
But that’s what is so charming about this…we mean, this whole adventure here in Argentina. For all its challenges and absurdities…
…it is real.
Yesterday, we described to our daughter and son-in-law how we had improved the cattle operation.
‘They get more food. So, the fertility rate is higher…which gives us more young animals (terneros) to sell.’
This morning, they came back from a walk up into the hills.
‘Dad…there are a dozen dead cows up there…’
No matter what you say…or what you think…you’re never far from the reality of the situation.
Returning to Warren’s world…
Berkshire versus Gold
We were wow-ed by a chart sent to us on Sunday by our sidekick, and investment director, Tom Dyson. We’ve been exploring how the numbers used by the feds are mostly lies and misinformation. The statistics are monsters, with arms sewn on where there should be legs…and ghastly heads made of pig iron. The money itself — the post-1971 dollar — is phony and unreliable. The theories and formulas used by the feds are faulty, clumsy, and fraudulent. And now we see that the whole boom — from 1999–2022, which took the Dow from 10,000 to more than 36,000 — was an imposter.
Let’s say, you were a smart investor. In 1999, you wisely decided to invest your money alongside the richest, smartest investor the world has ever produced — Warren Buffett.
It was very easy to do. In effect, Buffett operates a kind of mutual fund. He puts the best companies he can find in it. And he charges no fees or commissions for taking part. You just buy his ‘fund’ — Berkshire Hathaway.
Then, in the following 22 years — which, thanks to stunning tech breakthroughs and huge new capital inputs, as well as the enlightened guidance of the Fed, should have been the most productive and profitable years in human history — you keep your money in Berkshire.
Mr Buffett realised long ago that the secret to long-term capital growth is to reinvest the profits in more capital growth. Rather than paying dividends, which are taxed, the money is used to buy more good companies, thus increasing the capital value — the price of Berkshire stock.
So…you have the best investor in history, at the best time in history, with the best strategy ever devised. And no need to bother with the confusion wrought by dividends; there weren’t any.
What happened? Over the next 22 years, your investment went up, and up, and up. Buffett avoided the obvious pitfalls — the dotcoms…the mortgage finance dizzies…the crypto delusionals…and the tech dreams. No WeWork or Lyft for him. He stuck with good companies producing good profits, by providing good products and services to good customers.
Did his investors make money? Yes, they did.
But wait. The chart sent over by Tom Dyson shows that if you quote the price of Berkshire shares in terms of real money — gold — rather than dollars, you find that you have made no money at all. An ounce of gold buys you the same number of Berkshire shares now as it did 23 years ago.
In other words, there was no American Tailwind…not in the 21st century. Not yet. It was all ‘misinformation’. Buffett’s bet on American businesses didn’t really pay off. The investor would have done just as well to buy gold at the end of the 20th century and sit tight.
And what of the coming years? Will a stiff Yankee doodle breeze begin to blow again? Will the qualities that made the US such a success — balanced budgets, limited government, and a dollar you could trust — re-emerge? Or will a combination of debt, inflation, corruption, fiscal fantasy, fraud, and imperial overstretch doom the US to decades of misery?
Tune in tomorrow!
For The Daily Reckoning Australia