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´╗┐Warren Buffett And The Chinese Are Loading Up On Hard Assets

August 20, 2014
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James Rickards writes:

In the last several years, Warren Buffett went out and bought the Burlington Northern and Santa Fe Railroad. He didn’t just buy some stock, he bought the whole thing, took it private...A railroad is nothing but hard assets. It’s right of way, mining rights adjacent to the right of way, rail, rolling stock, yards, switches, signals, buildings, it’s all hard assets. How does the railroad make money? It makes money by moving hard assets so coal, wheat, corn, steel, other kinds of freight, etc. So, railroad is the ultimate, its hard assets moving hard assets. It’s the ultimate hard asset play. Warren Buffett’s next deal was to go out and buy massive natural resources in oil and natural gas. And by the way, he can move his oil on his railroad. He doesn’t need the Keystone Pipeline. You line up a hundred tanker cars, that’s a pipeline on wheels...

The Chinese have spent the last four years acquiring approximately 3,000 to 4,000 tons of gold....

And we also know that China is acquiring gold through stealth using intelligence and military assets to bring gold in completely off the books, doesn’t show up in Hong Kong imports. So, why is China doing this? Well, because they got a mountain of paper assets. They’ve got $4 trillion in reserves, almost all of it denominated in paper bonds....

. So, what China’s doing, they’re vulnerable in the paper. If we have inflation, that’s just a wealth transfer from them to us so they’re acquiring gold, thousands of tons of gold. By the way, there are only about 33,000 tons of official gold in the world. All the central banks, sovereign wealth funds and treasuries and finance ministries combined have about 33,000 tons of gold.

China’s acquired 10 percent of all of the official gold in the world in the last four years. So, why are they doing that? Well, they now have a hedge position. So, they actually want a strong dollar because they own so much dollars denominated paper. If the dollar is strong, they might not make very much on the gold, but they’ll collect the value of their bonds, but if we inflate the dollar, which we’re trying to do, and the value of those bonds goes down in real terms, we know what’s gonna happen.

The gold is gonna go up like this so they’ve created a hedge where they win this way and they win this way so I would say look at China buying gold, look at Warren Buffett buying hard assets in energy and that will give some guidance.

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