Mocking Warren Buffett: David Einhorn Trashes Cash and Implicitly Touts Gold
Hedge Fund manager David Einhorn, well known for his persuasive belittling of companies he has shorted – a recent successful target was Green Mountain Coffee Roasters (GMCR) – has slyly taken on a sturdier target in his May 29 letter to holders in his Greenlight Capital funds: Warren Buffett.
Buffett, you’ll recall, devoted ten paragraphs of his latest letter to Berkshire Hathaway (BRK.A) (BRK.B) shareholders to mocking Gold Bugs. It’s a tour de force by the Old Man, and we highly recommend reading the passage .
In it, Buffett figuratively stacks up all the world’s gold and compares it to assets he views as more productive:
“Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A.”
“Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?”
Buffett calls the run-up of gold a bubble and adds: “And then the old proverb is confirmed once again: ‘What the wise man does in the beginning, the fool does in the end.’ ”
Einhorn, of course, has gold in his holdings. It’s among his top-five long positions, he discloses in the letter, along with Apple (AAPL), Arkema, a European chemicals company, General Motors (GM) and Seagate Technology (STX). And apparently he didn’t take kindly to Buffett’s ridicule. Without ever mentioning gold, Einhorn mocks by imitation Buffett figurative stacking up of assets, using Omaha, Buffett’s home town, in the argument:
“The debate around currencies, cash, and cash equivalents continues. Over the last few years, we have come to doubt whether cash will serve as a good store of value. If you wrapped up all the $100 bills in circulation, it would form a cube about 74 feet per side. If you stacked the money seven feet high, you could store it in a warehouse roughly the size of a football field. The value of all that cash would be about a trillion dollars. In a hundred years, that money will have produced nothing. In a thousand years, it is likely that the cash will either be worthless or worth very little. It will not pay you interest or dividends and it won’t grow earnings, though you could burn it for heat. You’d have to pay someone to guard it. You could fondle the money. Alternatively, you could take every U.S. note in circulation, lay them end to end, and cover the entire 116 square miles of Omaha, Nebraska. Of course, if you managed to assemble all that money into your own private stash, the Federal Reserve could simply order more to be printed for the rest of us.”