Are Chinese Women Smarter Than Warren Buffett?

Warren Buffett is one of the world’s most successful investors. He is also a well-known critic of gold as an investment. He believes buying gold is “stupid.”

Middle-aged Chinese women did not get university economics or finance degrees. They do not understand the difference between economic schools of thought. But they have lived under brutal Communism. They have suffered extreme poverty. They understand what it takes to preserve wealth under tyranny.

These Chinese women are buying gold. More than Indian fathers. From a recent report:

On Sunday afternoon, a microblogger in Beijing logged into Sina Weibo, China’s leading social media platform, to gossip about the “auntie” next door. It’s a broad term of respect for an older woman, and his followers understood precisely what he meant when he tweeted, “The auntie next door used all of her retirement savings to buy gold. When asked what she’d do if prices keep dropping, she replied that if everyone kept buying gold, the price wouldn’t drop…”

This might strike a conservative investor as reckless. But in China, where gold has long been a national obsession, a mid-April record crash in global gold prices has been seen as an unprecedented buying opportunity. According to reports in China, Chinese have purchased 300 tons of gold worth more than $16 billion since the crash.

These people are not trading gold futures on margin. They are allocating their savings to precious metals.

Photos of crowds packing jewelry shops and emptying their shelves are now regular features in the news media. On Monday, a police officer in Shanxi province tweeted, in regard to his actual aunt: “My aunt’s family has a gold store, and my colleague who’s in the market for some gold for his mother asked if I could get him a cheap price. I asked, and my aunt said first come and take a look to see if anything catches your eye. But at the moment the display cases are empty, and they are unable to get new inventory. All I can say is that the power of the Chinese is frightening.”

China’s voracious appetite for gold is long-standing. At Chinese jewelry stores, the spot price for gold is always prominently displayed. Calculators and scales are never out of a customer’s reach. Gold jewelry is desirable, but so are gold bars, and any jewelry store that considers itself full-service will stock ingots of various weights. (In April, an investor in Guangzhou bought 44 pounds of the bars, according to a local newspaper.) Special commemorative bars in various weights and designs were issued for the 2008 Beijing Olympics and the 2010 World Expo in Shanghai.

The current rush is unusual in two ways. The first is its epic scale. The second is that, according to both traditional and social media, aunties are doing most of the buying.

This activity is widespread in China. When something is widespread in a country with 1.35 billion people, it’s a real phenomenon.

Social media tends to take a less critical, and more personal, view of the aunties. Depictions involving mother-daughter interactions, in particular, are very common. On Saturday, Zhongxiao Fang Fang Fang, the handle for a microblogger in Shenzhen, tweeted: “Yesterday my mother called me to say the price of gold has fallen, and to ask me to go to Hong Kong to buy gold. I said I didn’t want any. She very calmly said it would be good to prepare a dowry so I can get married!”

Reported elsewhere:

Perhaps the majority of Americans cannot comprehend the unusual feelings Chinese people have toward gold and silver. They’ve never considered that rather than being afraid to invest in gold, the Chinese are more afraid that they won’t possess gold. Maybe what Chinese aunties care about is not the price of gold tomorrow, their desire is perhaps nothing more than to buy gold, to delight in gold, to hold it. Chinese aunties’ gold investment strategies are simple and unsophisticated, they just “buy what they want.”

What do the Chinese aunties know that Warren Buffett doesn’t?

Read more at Bloomberg


Foreign Aid and First Nations

As always, the ongoing controversy between First Nations and the Canadian government will produce no solutions, because no one seems to understand the problem.

Before we consider this matter, consider a basic principle. By their very nature, governments expropriate wealth from their subjects. Agents of the government allocate this wealth for all kinds of purposes that suits them or it. One of purposes available to wealthier governments is foreign aid.

Foreign aid has been called, “Stealing money from poor people in rich countries, and giving the money to rich people in poor countries.” Essentially, the aid is given to a corrupt foreign governments in backwards nations which are then expected to somehow help the common man in their countries. Usually the aid package involves the stipulation that the aid receiver must purchase stuff from the aid-giver.

The aid-receiver then uses this aid the same way it uses all its resources — reward political interests. This actually displaces real economic activity — i.e. activity that is determined by market participants and not politics. Naturally, the government and its friends benefit. The common man is worse off because their overlords have more wealth at the expense of others.

This also describes how First Nations Reserves work. These reserves are like third-world countries, with the role of crooked dictator and his cronies occupied by the chief, the band council, and their friends. The Indian Band is a legal entity under the Indian Act, and you could say it operates like a corporation that depends on government subsidies to exist. Hence, it is characterized by bad products and capital depreciation. Never forget this: the Indian Band receives its revenue via wealth expropriated from others. The “band” collectively receives aid from the government, but the aid must be administered by the reserve’s own governing body. These folks inevitably enrich themselves, and maybe leave a few crumbs for the decrepit Indians beneath them. The poverty on most Indian Reserves is truly horrifying, and completely expected given the system’s nature.

What of the common First Nations people who qualify as “Indians” under the Indian Act, who do not get to administer the loot? They suffer severe restrictions to their property rights, much more so than Canadians on the “outside”. For instance, they cannot use their land as security in a credit transaction. They cannot transfer their land to other members of the band without the Crown’s approval. They are gravely restricted in how they can appropriate the proceeds of selling or renting their property. This is like Communist Russia. It is incredibly more dysfunctional than the rest of Canada, which is already screwed up to a great degree.

What else do Indian Reserves have in common with Communist Russia? Extremely high rates of suicide, self-incapacitation, family breakups, promiscuity, “illegitimate” births, birth defects, sexually transmitted disease, abortion, alcoholism, and dull or brutish behavior. They have tragically low life-expectancies and their healthcare standards are far below the rest of Canada. See here and here.

People who understand how wealth is created must understand the Reserve system can never be fixed, because it is based not on private property, but on bureaucratic management and political decision-making. No one proposes doing anything about this. Furthermore, theory and experience tells us that people who understand that the groups who receive the most government “aid” are usually those who suffer the most. Therefore, it is critical to apply this to the First Nations issue as well. The more government “aid” received by Indians, the more this group must ultimately suffer.

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