BYD News

China, Bulgaria discuss potential use of electric vehicles in Bulgaria

Yongping Chen, the Europe Manager of the Chinese company Build Your Dreams (BYD) has visited Bulgaria on the invitation of the Electric Vehicles Industrial Cluster (IKEM) to discuss potential use of such vehicles in the country.

Chen held working meetings on the issue with members of the IKEM Managing Board, IKEM informs.

IKEM representatives and the Chinese guest have also visited the municipality of Bozhurishte near Sofia on the invitation of its Mayor, who had outlined plans for the construction of a technology park there. The Mayor also presented achievements in improving local infrastructure and declared readiness for partnership with BYD, Novinite.com reports.

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BYD and Juwi-Gruppe connect 47MW PV project in Germany

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  BYD and Juwi-Gruppe have connected their 47MW PV project to the grid to begin commercial operation.

BYD and Juwi-Gruppe have announced that their 47MW solar project in Germany has officially started its commercial operation after it was successfully connected to the grid.

The project consists of 7 solar farms, the largest of which is a 24.4MW plant located in Herzogtum Lauenburg, Germany and covers an area of 168,649 square metres. The 24.2MW plant generates around 228,753,82 kWh of solar power every year. The specific locations of the other six plants have not been disclosed but they are all in Germany.

BYD supplied the PV modules for the project as mentioned by the general manager of BYD’s overseas solar sales division, Tom Zhao. “We’re very glad to have a great partnership with Juwi-Gruppe and we hope to keep expanding our cooperation. This cooperation between BYD and Juwi-Gruppe this time will take BYD’s cost effective and high efficiency solar modules to Germany to provide local residents with green and clean energy.”

BYD has focused its efforts in Germany of late. Just last week, it announced that it had connected two solar projects in the country, in cooperation with SunEnergy Europe, with a combined capacity of 6.65MW.

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BYD enters Brazilian market with 21kW rooftop installation

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  BYD has completed its first rooftop PV system in Brazil.

China-based BYD has connected its first rooftop solar project in Brazil. The PV system has been installed on the rooftop of the Brazilian Concessionária Ecorodovias highway toll station and has a capacity of 21kW. The installation was carried out by the EPC contractor Blue Sol Solar Energy, a Brazlian distributor of BYD products. 

Following the success of this project, BYD are keen to expand its solar business in the country. The general manager of BYD PV, Tom Zhao, said, “Though the project is not big enough, it’s BYD’s first rooftop project in the region. Based on the project, we are going to develop more business here. In solar industry, BYD has its unique core competence, we believe it is a good start.”

Earlier this week, BYD announced that it had connected a 47MW PV project in Germany — a project developed in collaboration with Juwi Gruppe.

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Electric bus fleet heads to Tel Aviv

Electric-powered buses will soon be plying the streets of Tel Aviv.

The Dan Bus Company, which serves Tel Aviv and its suburbs, has signed a deal with Chinese company BYD to purchase up to 700 full-size electric buses. The first buses will be deployed in the coming months, with more buses gradually joining Dan’s fleet over the next several years. Eventually, Dan hope to replace about half of its current fleet of about 1,300 buses with the new electric models.

The BYD buses are pure electric — without a standard internal combustion engine for backup, as in hybrids – and some of the models also sport a photovoltaic system on the roof to generate electricity, which is fed into the battery. The battery itself was developed by BYD, and the company claims that it is good for 6,000 recharges.

Recharging is done by simply plugging the battery into a special charger supplied by BYD, and 100 kilowatts of power is enough to supply the bus with enough power to run for 100 kilometers. The full recharging cycle is completed in 3-6 hours. Recharging will be done at Dan garages, not at Better Place recharging stations, which are being deployed around Israel for use by passenger vehicles.

Each bus is 12 meters long, and can run up to about 250 kilometers (155 miles) on a single charge, more than enough for a daily run on most routes. That assumes normal road conditions — hardly the case in traffic-choked Tel Aviv, where the distance per charge is likely to be somewhat smaller, Dan officials said.

BYD (an acronym for “Build Your Dreams”) is a major player in the electric bus market. Its buses are deployed in a number of cities in China, Europe, and North and South America, and US investor Warren Buffet owns 10 percent of the company. According to the BYD, the accumulated mileage achieved for its electric buses by the end of July 2012 reached over 8.23 million kilometers (5.1 million miles).

The buses are being brought to Israel by BYD’s importer, Clal Motors. In a statement, Doron Vadai, the CEO of Clal Motors, said, “BYD’s electric bus is the perfect solution for the city of Tel Aviv, reducing both emissions and noise for the benefit of the citizens of Tel Aviv. This pilot will make Dan one of the pioneers in the zero emission public transportation era in the world.”

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China's Guangdong Nuclear Power Secures Orders for BYD Battery Back-up for Nuclear Plants

China's Guangdong Nuclear Power Corp (CGNPC) announced the results of the bidding for their largest high-power, high-capacity battery back-up stations to date, with BYD of Shenzhen winning the bid.

A "National Energy Application Technology Research and Engineering demonstration project", CGNPC plans to couple these 3.5 Mega-Watt-hour back-up batteries with their nuclear power stations to deliver power up to 2.5MW levels. The energy storage station will serve as an emergency power source to safeguard workers and protect station equipment from being damaged in extreme conditions where the nuclear plants may lose their electrical supply.

Nuclear safety has become tantamount for the nuclear power industry due to recent events with increasingly stricter standards for product reliability. With failure potentially having life-or-death consequences, every single component, from reactor to screw, is held to a higher commercial standard. The battery backup system is designed to avert a disaster like Japan's Fukushima Power Plant 311 experienced because of a power failure. Technologies that qualified for this bid were all reviewed for their maturity, commercial stability and absolute safety and reliability even in the harshest conditions, such as earthquake, tsunami, fire, and radioactive exposure. BYD has gained industry-wide recognition as the safest, most environmentally-friendly and most mature battery energy storage solution available. BYD's second generation energy storage station can provide "passive" emergency power for Nuclear power plants.

In 2010, BYD launched the world's first MWh-level Iron-Phosphate (or "Fe") energy storage station attached to China's Southern Power Grid. In 2011, this plant was dwarfed by an even larger 36 MWh storage station at China's State Grid's "National Sun" project - a renewable, base-load power generation plant. BYD has also provided energy storage station solutions to global companies such as the EPRI, Chevron, Duke Energy, and the Power Science Institute. He Long Vice President of BYD said, "BYD is honored to cooperate with China's Guangdong Nuclear Power Corp to improve the reliability of our world's nuclear assets." Currently, there are more than 400 second generation nuclear power units worldwide, affording the opportunity for significant growth in the battery back-up industry.

BYD is a manufacturer of environmentally-friendly battery technologies like the BYD's Iron Phosphate battery used in BYD electric vehicles and electric buses.

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BYD Sells First Electric Cars to Thailand

BYD e6 electric crossover

SHENZHEN CHINA - Recently, MEA, the Thailand power company, has placed an order for 3 pure electric vehicles from BYD. This is BYD's first new energy vehicle business order in Thailand, adding a new domain for its global business area.

MEA is one of the three largest power companies in Thailand, mainly provide power supply for the capital Bangkok and two other nearby provinces. BYD will supply 3 pure electric vehicles and ancillary charging devices to MEA, to promote the development of electric vehicle industry in Thailand, also introduce BYD's Green City Solution and laid a strong foundation for Thai intelligent cities building.

At present, electric vehicles are generally not mass launched in Thailand. After recognizing that BYD's pure electric taxis have been successfully operating in Shenzhen for more than 2 years, MEA, who realizing the development trend of pure electric vehicle, rapidly showed great interests. The 3 purchasing electric vehicles are maybe used for the executive business cars for MEA senior leadership, to enhance its public image for green and environment protection.

MEA executive said, BYD is a pragmatic company, with the benefiting humankinds green career who focusing on electric vehicle industry.BYD has the world leading research, development and manufacturing strength on pure electric vehicle. Cooperation with the BYD reflects our common green ideas. We will keep the close relationship with BYD, to promote the development of electric vehicle, energy storage, and solar power industry in Thailand.

BYD e6 electric taxi, as the world's largest pure electric taxi team with launching up to 300, has been successfully operating in Shenzhen for over 2 years, which driving range achieve 24,380,000 kilometer. Electric buses also have launched more than 200, successfully running in Shenzhen, Changsha, Xi' AN, Shaoguan and other cities, which fleet footprints overseas present in many cities and regions.

The e6 order this time is BYD's huge breakthrough in Thailand, which opening up a whole new market for new energy products. Mr. Liu, the director of BYD Asia - Pacific Auto Sales, said, BYD is a company focusing on new energy industry. Our products have not only pure electric cars, electric buses, but also solar products and energy storage station. Our storage products based on the world's leading Fe battery technology, which have been successfully applied in the projects of Nation Grid and China Southern Power Grid. The cooperation with MEA this time is quite smoothly. We look forward for more multi-faceted cooperations with MEA in energy storage, solar power and other fields for Thailand's intelligent city and green future.

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Yunnan Investment, BYD to open energy vehicle manufacturing plants in China

Yunnan Investment Holdings and BYD are planning to open new energy vehicle manufacturing plants in Yunnan Province, southwest China.

Both the companies will cooperate in three stages over the coming year.

Under the first stage, the market will be developed with BYD supplying Yunnan Investment Holdings BYD e6 electric taxis to be dispatched in the main cities of Yunnan including Kunming, Qujin, Zhaotong, Honghe, Dali and Wenshen.

Second stage will see both the companies expand the business to electrify urban public transportation with BYD's GreenCity Electric buses.

In the third stage, BYD will work with Yunnan Investment to open a new-energy vehicle manufacturing base to serve all of southwest China and neighboring countries.

BYD chairman Chuanfu Wang said, "BYD is the only enterprise who has pure electric buses, pure electric and environmentally-friendly Iron Phosphate (Fe) battery technology in China."

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Berkshire's Charlie Munger Speaks

Man and machine

“THE most beautiful deleveraging yet seen” is how Ray Dalio describes what is now going on in America’s economy. As America has gone through the necessary process of reducing its debt-to-income ratio since the financial crash of 2008, he reckons its policymakers have done well in mixing painful stuff like debt restructuring with injections of cash to keep demand growing. Europe’s deleveraging, by contrast, is “ugly”.

Mr Dalio’s views are taken seriously. He made a fortune betting before the crash that the world had taken on too much debt and would need to slash it. Last year alone, his Bridgewater Pure Alpha fund earned its investors $13.8 billion, taking its total gains since it opened in 1975 to $35.8 billion, more than any other hedge fund ever, including the previous record-holder, George Soros’s Quantum Endowment Fund.

Mr Dalio, an intense 62-year-old, is following in the footsteps of Mr Soros in other ways, too. Mr Soros has published several books on his theories, and is funding an institute to get mainstream economists to take alternative ideas seriously. Mr Dalio, too, is now trying to improve the public understanding of how the economy works. His economic model “is not very orthodox but gives him a pretty good sense of where the economy is,” says Paul Volcker, a former chairman of America’s Federal Reserve and one of Mr Dalio’s growing number of influential fans.

Whereas Mr Soros credits the influence of Karl Popper, a philosopher who taught him as a student, Mr Dalio says his ideas are entirely the product of his own reflections on his life as a trader and his study of economic history. He has read little academic economics (though his work has echoes of Hyman Minsky, an American economist, and of best-selling recent work on downturns by Carmen Reinhart and Kenneth Rogoff) but has conducted in-depth analysis of past periods of economic upheaval, such as the Depression in America, post-war Britain and the hyperinflation of the Weimar Republic. He has even simulated being an investor in markets in those periods by reading daily papers from these eras, receiving data and “trading” as if in real time.

In the early 1980s Mr Dalio started writing down rules that would guide his investing. He would later amend these rules depending on how well they predicted what actually happened. The process is now computerised, so that combinations of scores of decision-rules are applied to the 100 or so liquid-asset classes in which Bridgewater invests. These rules led him to hold both government bonds and gold last year, for example, because the deleveraging process was at a point where, unusually, those two assets would rise at the same time. He was right.

What Mr Dalio calls the “timeless and universal” core of his economic ideas is set out in a 20-page “Template for Understanding” that he wrote shortly after the collapse of Lehman Brothers in 2008 and recently updated. The document begins: “The economy is like a machine.” This machine may look complex but is, he insists, relatively simple even if it is “not well understood”. Mr Dalio models the macroeconomy from the bottom up, by focusing on the individual transactions that are the machine’s moving parts. Conventional economics does not pay enough attention to the individual components of supply and, above all, demand, he says. To understand demand properly, you must know whether it is funded by the buyers’ own money or by credit from others.

A huge amount of Bridgewater’s efforts goes into gathering data on credit and equity, and understanding how that affects demand from individual market participants, such as a bank, or from a group of participants (such as subprime-mortgage borrowers). Bridgewater predicted the euro-zone debt crisis by totting up how much debt would need to be refinanced and when; and by examining all the potential buyers of that debt and their ability to buy it. Mr Volcker describes the degree of detail in Mr Dalio’s work as “mind-blowing” and admits to feeling sometimes that “he has a bigger staff, and produces more relevant statistics and analyses, than the Federal Reserve.”

Two sorts of credit cycle are at the heart of Mr Dalio’s economic model: the business cycle, which typically lasts five to eight years, and a long-term (“long wave”) debt cycle, which can last 50-70 years. A business cycle usually ends in a recession, because the central bank raises the interest rate, reducing borrowing and demand. The debt cycle ends in deleveraging because there is a “shortage of capable providers of capital and/or a shortage of capable recipients of capital (borrowers and sellers of equity) that cannot be rectified by the central bank changing the cost of money.” Business cycles happen often, they are well understood and policymakers are fairly adept at managing them. A debt cycle tends to come along in a country once in a lifetime, tends to be poorly understood and is often mishandled by policymakers.

An ordinary recession can be ended by the central bank lowering the interest rate again. A deleveraging is much harder to end. According to Mr Dalio, it usually requires some combination of debt restructurings and write-offs, austerity, wealth transfers from rich to poor and money-printing. A “beautiful deleveraging” is one in which all these elements combine to keep the economy growing at a nominal rate that is higher than the nominal interest rate. (Beauty is in the eye of the beholder: Mr Dalio expects America’s GDP growth to average only 2% over a 15-year period.)

Print too little money and the result is an ugly, deflationary deleveraging (see Greece); print too much and the deleveraging may become inflationary, as in Weimar Germany. Although Mr Dalio says he fears being misunderstood as saying “print a lot of money and everything will be OK, which I don’t believe, all deleveragings have ended with the printing of significant amounts of money. But it has to be in balance with other policies.”

Mr Dalio admits to being wrong roughly a third of the time; indeed, he attributes a big part of his success to managing the risk of bad calls. And the years ahead are likely to provide a serious test of whether the economic machine is as simple as he says. For now, he is in a more optimistic mood thanks to the European Central Bank’s recent moves, in effect, to print money. Although he still expects debt restructuring in Spain, Portugal, Italy and Ireland, on top of that in Greece, he says that the “risk of chaos has been reduced and we are now calming ourselves down.” Here’s hoping he is right again.

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Related Documents

A Template for Understanding How the Economic Machine Works and How it is Reflected Now

Why Countries Succeed and Fail Economically

An In-Depth Look at Deleveragings

A Billionaire's Take on the China Theme

George Soros and other influential voices at the 2012 World Economic Forum found China at the center of financial discourse

 

Caixin: You experienced the Asia financial crisis and now we are in the middle of the euro debt crisis. What are the differences?

George Soros: Actually, there is a remarkable similarity – a weakness in the structure of the world. The countries that became heavily indebted in euros turned out to be in a similar position to the Asian countries that became heavily indebted in U.S. dollars.

Both are borrowing in a foreign currency. You see, this is something that I didn't realize until recently: The euro is not controlled by individual countries. They have no control over issuing the currency. They are in the same position as a third-world country borrowing in a foreign currency.

And in the case of Asian countries, it was the IMF that imposed strict fiscal discipline. In the case of European countries, it was Germany that was fulfilling the same function. And that policy of strict fiscal discipline is counterproductive because it pushes the country that is heavily in debt into a recession, while the debt burden actually increases. And that is what's happening in Europe.

Caixin: When a financial crisis arrives, people claim there are two forces at play: One is from rational market investors, the other is from speculators. In terms of the euro crisis, which is the dominant force?

Soros: I believe that it was mainly caused by a lack of understanding about how financial markets really operate. European authorities have had very little interaction with the market, little experience. So financial authorities in the Anglo-Saxon world understand markets better than continental Europeans.

I gave a long list of mistakes made by European authorities in dealing with the Greek crisis, always doing too little too late. That's what aggravated the crisis. To me, it's very convincing.

Caixin: You said previously there should first be fiscal consolidation in the wake of the euro crisis, then restructuring. What else is needed?

Soros: Fiscal discipline at a time of economic decline creates this deflationary spiral. But given the fact that Germany does not want to be the deep pocket, financing other countries, you can't avoid first imposing fiscal discipline. Then, you must find a way to exit this vicious circle. And this cannot be done by the individual countries.

Keynes would have argued that creditor countries should stimulate their economies to offset recession in debtor countries. Now, the biggest creditor country, Germany, is obliged by its constitution to balance the budget. Therefore, it cannot stimulate.

The only possibility for stimulation has to come from the European Union. It has to be underwritten, supported or guaranteed by all member countries acting jointly and that means some kind of euro bond. Which is of course something that (German Chancellor) Angela Merkel is opposed to.

Caixin: How big is the likelihood of the euro falling apart?

Soros: The euro cannot fall apart because, if it did, the consequences would be catastrophic, because financial assets are intermingled based on a common currency. And if they became separated and had different values, you wouldn't know whether your counterparty was bankrupt or not. So it would be a dislocation that would be out of control.

What is happening now is that, increasingly, the financial system within the euro zone is being re-nationalized, so that most of Italian bonds are being held by Italian banks, Spanish bonds by Spanish banks, and so on. If that goes on for an extended period, it becomes possible for the euro to fall apart.

Caixin: What will we do if the worst-case scenario happens?

Soros: Well, we are moving in that direction. And of course there have been currency unions in the past that fell apart. For instance after the First World War in the Austro-Hungarian Empire, Czechoslovakia, Hungary and Austria each had a separate currency.

But in the present phase, where German banks and French banks have a lot of Italian and Spanish bonds, and German banks have claims against Spanish companies and so on, to break up this union now would be catastrophic. You can't unscramble an omelet. Once you have mixed the eggs together, you can't separate them again. This is actually in a very gradual way happening, slowly.

For an Italian bank to borrow from the central bank at 1 percent, and buy Italian bonds at 6 percent is very good arbitrage, and without risk. Because if Italy fails, then Italian banks would fail also, whether they have the bonds or not. So for them, it's riskless. For a German bank, it would be very risky. So right now, the financial system of the euro zone is being unscrambled.

Caixin: It seems you are very concerned about the role of international financial institutions such as the IMF. What kind of role can it play, and what kinds of reforms should IMF undergo?

Soros: Actually, the IMF right now is playing a very good role. First of all, it has substantial financial resources because as a result of the London G20 meeting in 2009, there was a US$ 1 trillion recapitalization.

The economists at IMF understand that the policy advocated by Germany is counterproductive. So they keep warning Europe against the policy that Germany is advocating. And I think that's very healthy, very positive.

Caixin: What role do you think China should play on the international financial stage in, for example, the euro crisis or an even greater crisis?

Soros: China has become one of the few positive forces in the global economy, a motor moving the economy forward. Not a strong motor, because it's much smaller than the United States. But it's wanted because of its (foreign currency) reserves and ability to stimulate the economy.

China can move the economy, the global economy, forward. But the (Chinese) leadership does not want to take responsibility for the global system. They say that China is a developing country, has got many problems on its own, and cannot take on an addition of the global system. (This is) very similar to the position that Germany is taking, not wanting to accept responsibility for the rest of the euro zone.

So within the small euro system, Germany is the main creditor. In the global system, China is the main creditor. And the creditors don't want to take responsibility for preserving the system.

That is the point that Keynes made many years ago: That creditors are equally responsible if there's an imbalance, not only debtors. If you only punish the debtors and don't stimulate the creditors, then the world goes into deflation. So in different contexts, we are replaying the problems of the Great Depression. We haven't learned the lessons that John Maynard Keynes taught us about deflation.

Caixin: What do you think about the yuan's internationalization progress?

Soros: That is moving forward very rapidly because European banks had been the main suppliers of credit to the world.

In the first quarter 2011, European banks had lent the developing world US$ 3.7 trillion. American banks lent US$ 1.5 trillion and Japanese banks lent something like US$ 700 billion.

So out of over US$ 5 billion in lending to the developing world, more than two-thirds came from European banks. That, of course, included banks based in London. The French banks, for instance, were very big in financing international trade. And because of the euro crisis, the banks were short of capital and had to shrink their balance sheets. That created a lack of financing for international trade.

So a lot of trade started shifting from dollars to being financed by offshore yuan based in Hong Kong. Actually, the Hong Kong market was rising, and was growing very rapidly. There has been a considerable slowdown in the last few months, and I don't know whether this is due to developments in the Chinese economy, or the fact that European banks now have access to credit from the European central bank. But the credit crunch for the European banking system has now eased.

Caixin: But the yuan is not fully convertible yet. How would that impact its path to internationalization? 

Soros: It's very indirect because the mainland yuan is separated from the offshore yuan. But there are interconnections. There was a Korean market, and there has been some more or less black market capital moving into China, which then because of the credit crunch in Europe left China, and it may or may not have coincided with the collapse of the Chinese real estate bubble. Whether there is a causal relationship as well is something that needs a lot of research. But I suspect there is a connection.

Caixin: Emerging markets weathered the storm relatively well. What kinds of risks do you think are ahead for emerging markets, perhaps from a so-called global imbalance?

Soros: Well, the developing world has done much better, mainly because of stimulation from China. Brazil could sell its food to China and could borrow a lot of money very cheaply to develop oil reserves in remote areas. It's very expensive. Brazil's economic growth is fueled by trade and investment with China.

The same is true in Africa. A lot of capital has gone into Africa, and if China now becomes more cautious because of the decline in exports, decline in its export surplus, that could have negative effects on Africa and Latin America.

Caixin: "State capitalism" was a buzz word at Davos this year. Some think China's economic achievements prove the success of state capitalism. How would you compare state capitalism to liberal capitalism?

Soros: First of all, as an individual, I'd hate to be subjected to the bar of the state, that my existence should be determined by the state. And if it were subject to that power from another state, like China, I don't think I would like that.

I don't think state capitalism is a very attractive form of capitalism. It has been very successful in China, but I very much hope that China will continue to develop and pass that phase as it develops, and begin to respect the freedom of individuals more. And I think the Chinese people feel the same way.

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China’s Official-Vehicle Purchases Include Only Domestic Brands

China issued a preliminary list for official-vehicle purchases this year that excludes all foreign brands.

The list contains of 412 domestic brands from companies including BYD Co. (1211) and Geely Automobile Holdings (175) Ltd., the Ministry of Industry and Information Technology said in astatement posted on its website yesterday. Five alternative- energy vehicle brands are included.

The 2012 vehicle-purchase list indicates foreign brands such as Daimler AG (DAI)’s Mercedes Benz and Volkswagen AG (VOW)’s Audi, that have been traditionally among those selected by the government, are out of favor to their local competitors. The ministry’s statement didn’t specify whether the list covers vehicles used by all government bodies, including those at senior levels.

China issued rules in November on vehicle procurement by government and Communist Party agencies to better regulate official car purchases and increase transparency of the procedure. The government said it’s also part of its efforts to cut administrative costs, save energy and reduce pollution.

Vehicles used for official purposes, such as tax collection and criminal investigation, must not have an engine size of above 1.8 liters and cost no more than 180,000 yuan ($28,571), according to the rules. Manufacturers must have spent no less than 3 percent of their core revenue on research and development in the past two years, the rules say.

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Warren Buffett: Why stocks beat gold and bonds

Investing is often described as the process of laying out money now in the expectation of receiving more money in the future. At Berkshire Hathaway (BRKA) we take a more demanding approach, defining investing as the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power -- after taxes have been paid on nominal gains -- in the future. More succinctly, investing is forgoing consumption now in order to have the ability to consume more at a later date.

From our definition there flows an important corollary: The riskiness of an investment is not measured by beta (a Wall Street term encompassing volatility and often used in measuring risk) but rather by the probability -- the reasoned probability -- of that investment causing its owner a loss of purchasing power over his contemplated holding period. Assets can fluctuate greatly in price and not be risky as long as they are reasonably certain to deliver increased purchasing power over their holding period. And as we will see, a nonfluctuating asset can be laden with risk.

Investment possibilities are both many and varied. There are three major categories, however, and it's important to understand the characteristics of each. So let's survey the field.

Investments that are denominated in a given currency include money-market funds, bonds, mortgages, bank deposits, and other instruments. Most of these currency-based investments are thought of as "safe." In truth they are among the most dangerous of assets. Their beta may be zero, but their risk is huge.

Over the past century these instruments have destroyed the purchasing power of investors in many countries, even as these holders continued to receive timely payments of interest and principal. This ugly result, moreover, will forever recur. Governments determine the ultimate value of money, and systemic forces will sometimes cause them to gravitate to policies that produce inflation. From time to time such policies spin out of control.

Even in the U.S., where the wish for a stable currency is strong, the dollar has fallen a staggering 86% in value since 1965, when I took over management of Berkshire. It takes no less than $7 today to buy what $1 did at that time. Consequently, a tax-free institution would have needed 4.3% interest annually from bond investments over that period to simply maintain its purchasing power. Its managers would have been kidding themselves if they thought of any portion of that interest as "income."

For taxpaying investors like you and me, the picture has been far worse. During the same 47-year period, continuous rolling of U.S. Treasury bills produced 5.7% annually. That sounds satisfactory. But if an individual investor paid personal income taxes at a rate averaging 25%, this 5.7% return would have yielded nothing in the way of real income. This investor's visible income tax would have stripped him of 1.4 points of the stated yield, and the invisible inflation tax would have devoured the remaining 4.3 points. It's noteworthy that the implicit inflation "tax" was more than triple the explicit income tax that our investor probably thought of as his main burden. "In God We Trust" may be imprinted on our currency, but the hand that activates our government's printing press has been all too human.

High interest rates, of course, can compensate purchasers for the inflation risk they face with currency-based investments -- and indeed, rates in the early 1980s did that job nicely. Current rates, however, do not come close to offsetting the purchasing-power risk that investors assume. Right now bonds should come with a warning label.

Warren Buffett: Your pick for Businessperson of the Year

Under today's conditions, therefore, I do not like currency-based investments. Even so, Berkshire holds significant amounts of them, primarily of the short-term variety. At Berkshire the need for ample liquidity occupies center stage and will never be slighted, however inadequate rates may be. Accommodating this need, we primarily hold U.S. Treasury bills, the only investment that can be counted on for liquidity under the most chaotic of economic conditions. Our working level for liquidity is $20 billion; $10 billion is our absolute minimum.

Beyond the requirements that liquidity and regulators impose on us, we will purchase currency-related securities only if they offer the possibility of unusual gain -- either because a particular credit is mispriced, as can occur in periodic junk-bond debacles, or because rates rise to a level that offers the possibility of realizing substantial capital gains on high-grade bonds when rates fall. Though we've exploited both opportunities in the past -- and may do so again -- we are now 180 degrees removed from such prospects. Today, a wry comment that Wall Streeter Shelby Cullom Davis made long ago seems apt: "Bonds promoted as offering risk-free returns are now priced to deliver return-free risk."

The second major category of investments involves assets that will never produce anything, but that are purchased in the buyer's hope that someone else -- who also knows that the assets will be forever unproductive -- will pay more for them in the future. Tulips, of all things, briefly became a favorite of such buyers in the 17th century.

This type of investment requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further. Owners are not inspired by what the asset itself can produce -- it will remain lifeless forever -- but rather by the belief that others will desire it even more avidly in the future.

The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.

What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As "bandwagon" investors join any party, they create their own truth -- for a while.

Over the past 15 years, both Internet stocks and houses have demonstrated the extraordinary excesses that can be created by combining an initially sensible thesis with well-publicized rising prices. In these bubbles, an army of originally skeptical investors succumbed to the "proof " delivered by the market, and the pool of buyers -- for a time -- expanded sufficiently to keep the bandwagon rolling. But bubbles blown large enough inevitably pop. And then the old proverb is confirmed once again: "What the wise man does in the beginning, the fool does in the end."

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 about $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?

Beyond the staggering valuation given the existing stock of gold, current prices make today's annual production of gold command about $160 billion. Buyers -- whether jewelry and industrial users, frightened individuals, or speculators -- must continually absorb this additional supply to merely maintain an equilibrium at present prices.

A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops -- and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil (XOM) will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.

Admittedly, when people a century from now are fearful, it's likely many will still rush to gold. I'm confident, however, that the $9.6 trillion current valuation of pile A will compound over the century at a rate far inferior to that achieved by pile B.

Our first two categories enjoy maximum popularity at peaks of fear: Terror over economic collapse drives individuals to currency-based assets, most particularly U.S. obligations, and fear of currency collapse fosters movement to sterile assets such as gold. We heard "cash is king" in late 2008, just when cash should have been deployed rather than held. Similarly, we heard "cash is trash" in the early 1980s just when fixed-dollar investments were at their most attractive level in memory. On those occasions, investors who required a supportive crowd paid dearly for that comfort.

My own preference -- and you knew this was coming -- is our third category: investment in productive assets, whether businesses, farms, or real estate. Ideally, these assets should have the ability in inflationary times to deliver output that will retain its purchasing-power value while requiring a minimum of new capital investment. Farms, real estate, and many businesses such as Coca-Cola (KO), IBM (IBM), and our own See's Candy meet that double-barreled test. Certain other companies -- think of our regulated utilities, for example -- fail it because inflation places heavy capital requirements on them. To earn more, their owners must invest more. Even so, these investments will remain superior to nonproductive or currency-based assets.

Whether the currency a century from now is based on gold, seashells, shark teeth, or a piece of paper (as today), people will be willing to exchange a couple of minutes of their daily labor for a Coca-Cola or some See's peanut brittle. In the future the U.S. population will move more goods, consume more food, and require more living space than it does now. People will forever exchange what they produce for what others produce.

Our country's businesses will continue to efficiently deliver goods and services wanted by our citizens. Metaphorically, these commercial "cows" will live for centuries and give ever greater quantities of "milk" to boot. Their value will be determined not by the medium of exchange but rather by their capacity to deliver milk. Proceeds from the sale of the milk will compound for the owners of the cows, just as they did during the 20th century when the Dow increased from 66 to 11,497 (and paid loads of dividends as well).

Berkshire's goal will be to increase its ownership of first-class businesses. Our first choice will be to own them in their entirety -- but we will also be owners by way of holding sizable amounts of marketable stocks. I believe that over any extended period of time this category of investing will prove to be the runaway winner among the three we've examined. More important, it will be by farthe safest.

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